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UK Salary Growth Slows But All Eyes On US Inflation Data!

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The Pound declines due to lower salary growth and the unemployment rate rising to 3.9%.
The US Dollar Index rises after weaker UK employment data which triggered weakness in both the Pound and the Euro.
US Dollar traders turn their attention to this afternoon’s inflation reading. Analysts expect US inflation to remain at 3.1% and for core inflation figures to fall from 3.9% to 3.7%.
Gold sees significantly higher trades according to the CFTC’s latest report. The commodity formed its ninth consecutive bullish candlestick (daily), but trades lower today.

GBPUSD – UK Salary Growth Slows, But Will Inflation Become Less Sticky?

The GBPUSD is forming its third lower high but is yet to form a significant “lower low”. If the price declines below 1.27943, the downward price movement would have gained adequate downward momentum to form a bearish price pattern. Also, if the price declines below this level, the exchange rate will fall below the neutral on the RSI and closer to the 75-bar EMA.

However, in order for the GBPUSD to maintain momentum the price will also require positive data from the US inflation data. If US inflation falls below expectations, the Dollar may also witness downward pressure making the direction of the exchange rate less certain. However, if the inflation data reads as expectations or higher, the Dollar potentially will continue rising. This is due to interest rates potentially remaining high for additional months. Therefore, the price action is largely dependant on this afternoon’s inflation data.

The US’s latest employment data does show signs of weakening as the salary growth falls and the unemployment rate rises. These statistics may influence the decisions of US Federal Reserve officials on monetary policy: most experts expect a transition to the “dovish” rhetoric at the regulator’s June meeting, and in total, two to four interest rate cuts of 25 basis points each are predicted this year. Though, this will significantly depend on today’s inflation data.

The UK data, on the other hand, is largely viewed as negative, as it implies less upward pressure on UK inflation. The UK Unemployment Rate unexpectedly rose from 3.8% to 3.9% and the Average Salary Index fell from 5.8% to 5.6%. Therefore, UK salary growth has fallen to its lowest level since September 2022. Previously the Governor of the Bank of England was advising high inflation levels was partially due to salary growth. Now growth is subsiding, will inflation also become less sticky? If so, the Pound can be pressured, if lower inflation is not also seen in the US.

 XAUUSD – CTFC Report Confirms Buyers Outnumber Sellers!

The Gold price did not review its all-time highs for a fifth consecutive day on Monday, but nonetheless, the commodity also did not show significant signs of weakness. Factors continue to indicate a need for the safe haven asset. This includes weakness in the stock market over the past week, geopolitical tensions, as well as potential lower interest rates.

If US inflation reads lower than expectations, the Fed will likely opt to cut interest rates sooner rather than later, as economic data has slightly withered over the past 2 months. If this is the case, the Dollar will see less attraction as a safe haven asset. For this reason, Gold could strengthen or at least retain the recent significant gains.

According to the CFTC, speculative Gold contracts have risen from 141,600 to 191,300 over the past week in the US. The report confirms 164,640 buy contracts against only 33,580 sell contracts. This indicates more traders believe the price will either remain high or continue rising. However, traders should note this will depend on the inflation reading in the short term.

Michalis Efthymiou

Market Analyst

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