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U.K. Labor Market Improvement Continues

13 October 2020 By Mircea Vasiu

After the U.S. Columbus Day holiday, financial markets prepare for one of the most important trading weeks until the U.S elections. This week all eyes are on the UK and the British Pound as the so-called “Brexit Summit” starts two days from now. 

Until then, the market just found out that the UK labor market improvement continues. Today’s claimant count change release showed another 28.1k people applying for unemployment benefits – much lower than the estimated 78.8k. In other words, it depends on how one looks at the data.

September 2020 U.K. Employment Rate and the GBP’s Reaction

The Claimant Count change in the United Kingdom is similar to the Initial Jobless Claims in the United States. However, in the U.K. it is a top-tier economic data, while in the U.S. the jobless claims are viewed as secondary in importance. The NFP (Non-Farm Payrolls) steals the show in America.

In other words, the lower the number or claims, the better for the economy and the currency. However today’s release did not move the GBP. In fact, for quite a while now, the GBP does not move.

The GBPUSD found an equilibrium level around the 1.30 mark. It did advance to 1.35 recently, but it was quickly knocked down to the 1.27 and below before regaining the level. It means that the market expects something else, it focuses on the bigger picture.

Similar price action is seen on the GBPCHF cross. This is one cross that historically has higher volatility levels  than most of the FX crosses. Not in 2020!

After the March dip in the risk assets that caused a higher CHF across the board, the GBPCHF cross recovered all the way to the 1.20 level. However that was months ago, and in the meantime, the price action remained stuck below but close to the 1.20 mark. Until the market knows something specific about Brexit, economic data like the claimant count change will simply not matter for the price action, regardless if it shows an improvement or not.

The upcoming EU summit will offer more clarity about Brexit. After the last move by the E.U. (i.e. triggering the infringement procedures against the U.K.), expect some sparkling developments into the week’s end.

If there is a time to reduce the risk on the GBP pairs, this is as good a time as it gets. Volatility is going to go through the roof.

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