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GBP/USD drops below 1.24 after inflation numbers

This week, the UK's unemployment rate fell to a 48 year low of 3.7% in the first quarter of the year, while inflation accelerated to a 9% annual rate in April.

Sentiment deteriorated again today, boosting the USD globally and sending the GBP/USD pair nearly 1% lower during the EU session. At the time of writing, it traded below the critical 1.24 support.

UK jobs market improves further

On the economic front, the UK unemployment rate fell to a 48-year low in the first quarter of the year, but figures from the Office for National Statistics revealed that rising inflation was squeezing wages.

The unemployment rate declined from 3.8% in the previous quarter to 3.7%, the lowest level since 1974, against experts’ predictions that it would remain unchanged at 3.8%.

Total earnings growth increased to 7% in March from 5.6% in February, while average earnings growth excluding bonuses only increased to 4.2% from 4.1%.

Average wages excluding bonuses declined 1.9% from a year ago when adjusted for inflation, the worst drop since 2013.

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From February to April, the number of vacancies reached a new high of 1,295,000, up 33,700 from the previous quarter and 499,300 more than pre-pandemic levels from January to March 2020.

“While the economy was still growing in the first three months of 2022, there continued to be a mixed picture for the labor market,” said ONS statistician Darren Morgan.

Inflation rising further

Furthermore, the UK Office for National Statistics (ONS) stated on Wednesday that the annual Consumer Prices Index (CPI) rate in April was 9%, up from 7.0% in March and below expectations of 9.1%.

Since the current series began in 1989, the annualized value has reached its greatest level.

Meanwhile, core inflation (excluding volatile food and energy goods) increased by 6.2% YoY in April, up from 5.7% in March and meeting market expectations of 6.2%.

UK Finance Minister Rishi Sunak attributes the 9% jump in the Kingdom’s annualized inflation rate to the energy price cap rise in April.

“Today’s inflation numbers are driven by energy price cap rise in April, in turn, driven by higher global energy prices. We cannot protect people completely from global challenges but are providing significant support where we can and stand ready to take further action,” Sunak said.

In a statement released on Wednesday, UK Foreign Minister Liz Truss expressed her concern over the country’s economic condition.

Truss said that “we’re facing a very difficult economic situation.”

If GBPUSD settles below 1.24, the short-term outlook could change to bearish again, targeting the current lows at 1.22. On the other hand, the resistance is at 1.24, followed by yesterday’s highs near 1.25.

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