UK jobs and BoE commentary lift pound to a five-week high

• Just above 1.3400, GBP/USD reaches its strongest level since mid-September.
• With unemployment down to 4.7%, MPC member Greene cautions that pay growth is no longer easing.
• A 3.4% UK CPI reading is expected on Wednesday, ahead of BoE Governor Bailey’s speech on Thursday.

Tuesday’s UK jobs figures strengthened the case for a Bank Rate increase on 5 November, sending GBP/USD to its highest level since mid-September. From around 1.3300, the pair advanced to just above 1.3400 before finishing marginally below that level.

At 4.7% in the three months to August, unemployment came in below the 4.9% forecast, while pay growth excluding bonuses increased to 3.7%, a tenth above expectations. Although the release also showed an additional 30.3K people claiming unemployment benefits, more than half as many again as the 19.4K forecast, traders focused on the unemployment rate.

Pay growth has ceased to slow, according to Bank of England (BoE) Monetary Policy Committee (MPC) member Greene, who backed a rate increase in September. She argued for early BoE action to prevent higher prices feeding through to wages. Markets assign roughly a 95% probability to a rise in Bank Rate from 3.75% on 5 November, which would bring it into line with the upper end of the Fed’s 3.75%-4.00% range.

UK inflation and retail sales shape the policy outlook

Wednesday’s UK Consumer Price Index (CPI) release, due at 06:00 GMT, is expected to show inflation at 3.4%, up from 3.1%, and core inflation at 2.7%, compared with 2.6% previously. A speech by BoE Governor Bailey follows on Thursday at 10:50 GMT. Friday brings retail sales at 06:00 GMT, with a 0.1% decline forecast after a 0.5% increase. Each of these three events will inform the 5 November decision.

In the US, Friday’s schedule starts with the S&P Global business surveys at 13:45 GMT. The University of Michigan sentiment reading is then due at 14:00 GMT and is expected to remain at 46.3. It will be the last US release before the Fed’s decision on 28 October.

GBP/USD returns to its 200-day EMA

For the first time in more than a month, GBP/USD’s advance brought it back to the 200-day Exponential Moving Average (EMA), above the 50-day EMA near 1.3350. The recovery from the 14 October low just below 1.3150 has retraced roughly half the decline from August’s peak just below 1.3700. Daily momentum has reached overbought territory for the first time since late August.

Daily chart for GBP/USD