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Mixed UK data, GBP unchanged in the aftermath - UBS

FXStreet (Córdoba) - Wednesday's UK labor market report relayed both positive and negative signals for the GBP, says the UBS analyst team and this came on top of slightly weaker-than-expected inflation data on Tuesday. As such, UBS says they are not surprised that GBP has neither strengthened nor weakened much in the last two days.

Key Quotes

“For us the most important point from the labor market data release is that the UK economy is moving closer to full employment and wage growth is still high at 2.5%. Hence, we still see GBP as one of the strongest performing major currencies over the coming six months”.

“On the positive side, the unemployment rate in the UK dropped further, reaching 5.4%, the lowest level since the recession of 2008/09. On the negative side, the claimant count rose, putting into question how much the unemployment rate can still fall in the coming months. Also, the growth rate of average weekly earnings excluding bonus payments fell to 2.5% from 2.9% year-over-year. While this is certainly still a very solid growth rate, especially considering that inflation is at –0.2%, the Bank of England will likely want to see stronger wage growth to stimulate inflation”.

“Risks that the Bank of England will hike rates later than February 2016 have thus risen. But importantly, the UK economy is still on a path toward an eventual hike, which should continue to favor GBP against EUR and CHF”.

“One of the bigger risks for our GBP outlook remains the US Fed, whose members have recently voiced concerns about rate hikes this year. We believe that the Fed needs to move first to enable the Bank of England to hike rates, otherwise GBP could appreciate too much”.

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