Better than expected ILO unemployment report likely to boost pound

Another post-referendum unemployment report will be published today and that is likely to be a key driver for the sterling. The focus is now on two things, what will be the future British relations with the European Union and how the economy is performing after the referendum vote that has opened up the possibility of an exit from the Union.

So far according to our analysis, more than half of the economic releases after the referendum have proved to be good and if the August unemployment report shows strength it would be more confirmatory to our analysis that the UK economy is doing better than expected.

Today’s employment report to be released at 8:30 GMT and will show the impact of the referendum in the labor market.

Below is the preview of the report -

• As of now, the unemployment rate in the UK stands at 4.9 percent and median estimate suggests it is likely to remain same.

• So, the major focus will be on earnings growth, since that will be the measure of economic wellbeing.

• Moreover, a positive wage growth should help to downsize the fear of a slowdown in the economy. It will be nice evidence that companies are ready to increase wages even in the face of a potential exit from the union.

• Wage growth has been declining since October last year when it reached a peak of 2.8 percent growth excluding bonus. Wage growth was 2.1 percent excluding bonus and 2.3 percent including it last month.

• Today earnings growth is expected to be 2.3 percent including bonus and 2.1 percent excluding it.

We forecasted for the pound to reach 1.2 against the dollar and during the flash crash in late September it dropped to 1.184. So, technically the target is reached, so we are expecting a bit of a bounce back, while we remain committed to our longer-term parity target. The pound is currently trading at 1.228 against the dollar.