What will the UK Claimant Count and inflation readings tell us?

If the data is stronger than expected, BOE members may come out more hawkish


For the month of June, the number of people claiming unemployment benefits dropped by 114,800!  It was the fourth consecutive month of declining claims and the biggest drop ever!  On Tuesday,  the UK will release the Claimant Count Change for July.  As the number of new daily coronavirus cases continue to drop and the UK economy continues to grow, more people are getting jobs.  The expectation for July’s claimant count is a drop of 180,000. And don’t forget that the furlough scheme expires at the end of September!  In addition, Average Hourly Earnings, including Bonus, will also be released for June.  Expectations are for a rise by 8.5% YoY vs a May reading of 7.3% YoY! 

When the BOE met on August 5th, they said they expect inflation to reach a high of 4% by early 2022 (up from 2.5% in May), then fall back towards their 2% target. Inflation data is due out on Wednesday, and the headline print is expected to fall from 2.5% YoY in June to 2.3% YoY in July.  Putting this all together, expectations are for a decrease in unemployment claims, an increase in wages, and a decrease in overall inflation data.  This is why the BOE expects CPI to be higher in the coming months.

Everything you need to know about the Bank of England

Recently, GBP/USD has gone bid from a recent low of 1.3568 and ran into a confluence of resistance on  July 29th:

  • the 61.8% Fibonacci retracement level from the highs of February 24th to the lows of July 20th
  •  a long-term upward sloping trendline from late December 2020
  • the psychological round number resistance level of 1.4000

Source: Tradingview, Stone X

On a 240-minute timeframe, GBP/USD has pulled back from near the 1.4000 level in a flag formation to the 50% retracement level from the July 20th low to the July 29th high, near 1.3780.   The target for a flag formation is the length of the flagpole added to the breakout point of the flag, which is near 1.4200.  However, if price is to reach the target, it must first pass through the top, downward sloping trendline of the flag near 1.3872, the July 29th highs at 1.3985 (~1.4000) and horizontal resistance at 1.4072.  If the flag pattern fails, support below is at the previously mentioned 50% retracement level near 1.3780,  the 61.8% Fibonacci retracement near 1.3731, and horizontal support at 1.3643.

Source: Tradingview, Stone X

With a host of data out of the UK this week, including the Claimant Count Change and the CPI for July, the Pound could be in for some volatility.  If the data is stronger than expected, BOE members may come out more hawkish, which could raise the value of GBP/USD!

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