GBP/JPY loses the 20-day SMA after British labour market data

• The GBP/JPY cross tallies a fourth consecutive day of losses and retreats to near 181.00.
• The ONS from the UK reports that wages and unemployment increased in the three months leading up to May.
• Falling Japanese yields to limit the JPY’s gains.

On Tuesday, the GBP/JPY continues to lose ground and at the time of writing trades at 181.25. GBP is weakening after the Office for National Statistics (ONS) from the UK reported that unemployment picked up in May as wages increased, a red flag for the Bank of England (BoE). On the other hand, falling yields and weak economic data may limit the JPY’s advance.

Investors assess rising wages and unemployment in the UK

The ONS released mixed labour market data on Tuesday. The unemployment rate increased by two ticks to reach 4.0% during the three months leading up to May, its highest since January 2022, while markets expected it to remain steady at 3.8%. On the other hand, there was an improvement in wage growth: Average Weekly Earnings rose by 6.9% year-on-year, surpassing the expected 6.8%, and this figure was also revised upward from a reported 6.5% for April.

Despite the higher unemployment figures, according to the World Interest Rate Probabilities (WIRP), markets are discounting higher odds of a 50 basis points (bps) interest rate hike from the BoE on August 3, followed by another 50 bps hike on September 21 and additional 25 bps increase in Q4, which would see the bank rate peak at 6.5%.

On the other hand, Machine Tool Orders in Japan declined by 21.7% in June YoY, compared to, a slight improvement from the 22.1% decline observed in May. In addition, falling Japanese yields from Japan due to weak data may contribute to limiting the JPY’s advance. On Wednesday, the May core machine orders will be released, and market expectations predict a year-on-year increase of 0.1%, an improvement from the previous month’s decline of -5.9% in April. The June Producer Price Index (PPI) data will also be reported, with an anticipated year-on-year rate of 4.4%, lower than the previous 5.1%. This set of data will help markets model their expectations regarding the next Bank of Japan (BoJ) steps, affecting the JPY’s price dynamics.

GBP/JPY Levels to watch

After losing the 20-day Simple Moving Average (SMA), the short-term outlook has turned negative for the GBP/JPY cross. The Relative Strength Index (RSI) points south while the Moving Average Convergence Divergence (MACD) prints higher red bars, indicating that the bears are gaining ground.

Support Levels: 181.00, 180.50, 179.00.
Resistance Levels: 182.01 (20-day SMA), 182.50, 183.00.

GBP/JPY Daily chart