GBP/USD: full load down on the round turn post UK ILO jobless rate/Carney & Co

• GBP/USD: plenty of funda priced into the market today.
• GBP/USD: reverses UK ILO jobless rate losses.
• Carney & Co, testifying to the TSC sent a bid into the pound.
• DXY struggles and back on the back foot. 

It has been a very eventful day for the pound so far, and a lot has happened already before the FOMC minutes later today. GBP/USD initially dropped to 1.3927 after the unexpected UK ILO jobless rate rise, falling back from the space on the 1.40 handle. A low was made down at 1.3904 before a recovery ensued. Currently, GBP/USD is trading at 1.3972, down -0.14% on the day, having posted a daily high at 1.4010 and low at 1.3904.

UK ILO jobless rate rise came in as 4.4% vs 4.3% forecast and the employment change for Dec arrived at 88k, vs 173k forecasted and the previous 102k. The pound subsequently crashed immediately to 1.3927, (as a one-week low), from 1.3972. "Further momentum in wage growth makes a May rate hike all the more likely, although the latest employment data is a little more concerning," analysts at ING explained.

There had already been a drop from 1.3996 to 1.3949  on hard Brexit concerns with a  faction in PM May's party comprising of 62 of the Tories' 316 MPs. "The divisions within May’s government have become increasingly evident.  This factor keeps alive the risk of leadership bid or even an election. The latter raises the prospect of a far left UK government.  We see risk of EUR/GBP trending towards the 0.93 area this year," analysts at Rabobank were warning.

EUR/GBP on front foot amid subdued UK job data and Brexit squabbling

There was then a break down in the dollar again with the DXY losing steam and falling back from 90.00 and a re-run back towards the day's lows of 89.70. At the same time, there has been a number of key speeches from Central Bankers at the Fed and indeed the BoE.

GBP/USD: Sterling stabilizes as Carney repeats known messages

Carney & Co, testifying to the TSC

Carney & Co, (Haldane, Broadbent and newcomer, Tenreyro), who have been testifying to the TSC facing questions on not just interest rates, but wages and jobs growth given today's the less than impressive data. So far, Haldane said that it is more likely that the UK will see a pickup in wage growth. Carney has not committed to a path of interest rates to the TSC, while his team are pointing to firming inflationary pressures and committing to a more hawkish view as the world economy and the UK is looking stronger, although saying that BOE rate hikes would be gradual and limited. Carney has said the biggest uncertainty is still Brexit and that uncertainty is weighing on business investment. Carney also said that we are probably at the peak point of impact of weaker sterling on inflation. The testimony was suspended at this point and the pound got a lift from what was digested by traders as a more upbeat assessment of the outlook for the UK economy from the officials. 

In the background to all of this, there had been some data releases from the US in Markit manufacturing PMI for Feb (Prelim) coming in better at 55.9 vs. the 55.5 expected. The employment index for US manufacturing was also improved at 55.8 versus 54.8 last month. Then, the existing home sales for January 5.38M vs. 5.60m expected. 

As per Fed speak, Fed's Kaplan said that the Fed should raise rates gradually and patiently this year while US Fed's Kashkari says they are not targeting FX to move the USD up or down and that higher market rates show optimism, adding that there is still some slack left in US labour market and that tax cuts could help Fed achieve 2% inflation target.

GBP/USD levels

GBP/USD is making headway back towards the 1.40 handle but has been making hard work of that psychological area. On repeated failures, one would assume that the case for the downside is intensifying with continued pressures below 1.3980. On a break of the 1.3800 level, 1.3770 would be key below there ahead of 1.3658 as being the September peak. However, should the bulls manage to get above water on the 1.40 handle again, the 200-week moving average is located at 1.4347 and remains a key target through 1.4148.