Can unemployment report support Pound?

Since Bank of England (BOE) published its inflation report, suggesting no hike required from BOE in 2016, to keep inflation in check, pound has been struggling. This year's turmoil in financial markets, dovish commentaries and China has pushed it to 7 year low against Dollar.

Yesterday, comments from Bank of England (BOE) Governor Mark Carney has further derailed pound. At least till the mid of last year, Mr. Carney has been instrumental for keeping BOE rate hike expectations elevated. After Mr. Carney commented that current economy isn't calling for a rate increase, pound broke below 1.42, 5 year support and plummeted to levels not seen since crisis.

A key piece of data, unemployment report will be published today at 9:30 GMT, now key question whether it can or cannot support Pound.

Yes it can, only if wage growth rises substantially.

• As of now unemployment rate in UK stands at 5.2% and median estimate says it will remain so in today's reading.

• So major focus will be on earnings growth, since BOE policymakers in several instances announced they will be looking at wage growth component and current rate is not sufficient to generate targeted inflation. This component has gained sharply since last year, however slowing down in second half of the year. In three months to October, average earnings excluding bonus rose by 2%, much lower than 2.9% seen in July.

• Today market is expecting slowdown further in earnings growth at 1.87% excluding bonus but to grow 2.4% including it.

Impact -

• Data, coming as expected, would be further bearish for Pound as it would mean economic growth slowing down substantially.
  
  
• However any wage growth above 2.5% excluding bonus likely to boost sentiment.
  
  
• While better data might pause selloffs, but mitigating it won't be easy as inflation numbers are still pointing to deflation or disinflation.