GBP/USD struggles amid record U.K. wage growth and rising unemployment

The Pound Sterling (GBP) is grappling with a difficult situation as it struggles around 1.25 against the US Dollar (USD) despite a record wage growth in the UK. The GBP/USD rate continues to hover just above 1.25 following the release of UK jobs data which revealed an increase in unemployment, alongside another fresh record high in wage growth.

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Dollar details

in focus

The UK unemployment rate rose to 4.3%, meeting expectations, and up from the previous 4.2%. However, wage growth, including bonuses, rose to 8.5% in the three months leading up to July, a significant increase from the previous 8.2% in the three months to June. Wage growth excluding bonuses also rose to 7.8%. These figures indicate that earnings are increasing at a record pace, outstripping inflation and boosting individuals’ purchasing power.

The Bank of England (BoE) finds itself in a tight spot with the robust UK labor market ahead of next week’s interest rate decision. The central bank is under pressure to raise interest rates further due to increased inflationary pressure on the economy.

Catherine Mann, a member of the BoE Monetary Policy Committee known for her hawkish stance, signaled that she would likely support another interest rate increase and urged officials to “err on the side of tightening to prevent further persistent inflation from crystallizing.” However, instead of rising on this prospect, the pound is struggling with the potential negative impact of another rate hike on the economy in the second half of the year.

Dollar details

Meanwhile, the US dollar (DXY) is gaining ground, reversing some of yesterday’s losses as investors anticipate Wednesday’s inflation data. The data is expected to show that inflation rose again in August, although core inflation is predicted to have cooled further.

In related news, the EUR/USD is falling towards 1.07 ahead of German ZEW economic sentiment data. The European Central Bank (ECB) also finds itself on a knife-edge ahead of Thursday’s rate decision, with investors doubting whether the central bank will be able to raise rates for a tenth time amidst widespread signs of an economic downturn. The US dollar is reversing yesterday’s losses as it awaits inflation data on Wednesday, with no high-impact U.S. economic data expected to be released today.

GBP/USD struggles amid record U.K. wage growth

GBP/USD struggles amid record U.K. wage growth

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