Cable spiked to fresh post Brexit highs in early London trade today, but the rally lost its legs after UK Labor data missed its mark.
UK Claimant count expanded to 11.6K from 5K eyed while average earnings came in at 2.8% versus 3.0% forecast showing that wage growth remains tepid. The ILO unemployment rate however improved slightly to 4.2% from 4.3% projected. Overall the labor data news showed a slowdown in UK growth, but not to an extent that’s likely to prevent the BoE from hiking rates in May.
Cable has been on a one-way trip higher since the middle of last week, buoyed by EURGBP flows and upbeat sentiment about Brexit talks and the momentum in the pair remains strong irrespective of the data. Still, today’s news did not help the bulls as it clearly showed that UK economy is slowing which will make the task of normalization more difficult for BOE.
Today’s reversal and close near day’s lows also signals that bulls are tired and the pair may see more profit taking tomorrow especially if CPI data prints cooler putting the BoE rate hike in doubt. That could bring sterling all the way back to 1.4200
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