GBP/JPY remains below 190.00 following UK labor market report

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GBP/JPY remains below 190.00 following UK labor market report

GBP/JPY received downward pressure after the UK employment data released on Tuesday.
The ILO Unemployment Rate (3M) rose to 4.4% in November, exceeding expectations and the previous rate of 4.3%.
Japan's Kato remarked that the BoJ is anticipated to adjust its monetary policies appropriately to meet the 2% inflation target.

GBP/JPY experiences a decline after two consecutive days of gains, trading around 190.90 during the European session on Tuesday. The Pound Sterling (GBP) faces pressure following the release of labor market data from the United Kingdom (UK).

The ILO Unemployment Rate increased to 4.4% from September to November 2024, surpassing market expectations and the previous rate of 4.3%. This marks the highest level since the three months ending in May 2024.

The Employment Change rose by 35,000 in the three months to November, a sharp slowdown from the 173,000 increase in the prior period. Nonetheless, this marks the eighth consecutive three-month period of job growth.

On a positive note, UK Average Earnings Excluding Bonus, a key indicator of wage growth, rose by a solid 5.6%, beating estimates of 5.5% and the prior 5.2%. Average Earnings Including Bonus also grew by 5.6%, in line with expectations and surpassing the 5.2% growth seen in the three months ending October.

On Tuesday, Japan’s Finance Minister Katsunobu Kato stated that the BoJ is expected to implement monetary policies appropriately to achieve its 2% inflation target. Kato also added that Japan will respond accordingly after evaluating the new US President’s policies and will closely monitor the impact of US policies on both the global economy and Japan.

Recent hawkish comments from Bank of Japan Governor Kazuo Ueda and Deputy Governor Ryozo Himino, coupled with growing inflationary pressures in Japan, have increased expectations for an imminent rate hike by the Bank of Japan (BoJ). The markets are now pricing in an 80% chance of a rate hike later this week.

Economic Indicator

ILO Unemployment Rate (3M)

The ILO Unemployment Rate released by the UK Office for National Statistics is the number of unemployed workers divided by the total civilian labor force. It is a leading indicator for the UK Economy. If the rate goes up, it indicates a lack of expansion within the UK labor market. As a result, a rise leads to a weakening of the UK economy. Generally, a decrease of the figure is seen as bullish for the Pound Sterling (GBP), while an increase is seen as bearish.

Why it matters to traders?

The Unemployment Rate is the broadest indicator of Britain’s labor market. The figure is highlighted by the broad media, beyond the financial sector, giving the publication a more significant impact despite its late publication. It is released around six weeks after the month ends. While the Bank of England is tasked with maintaining price stability, there is a substantial inverse correlation between unemployment and inflation. A higher than expected figure tends to be GBP-bearish.