British Pound pushes against five-week lows following mixed UK employment data

• GBP/USD depreciates for the second consecutive day with the 1.3465 support area in danger.
• UK Unemployment Rate remained steady in July, but jobless claimants grew well beyond forecasts.
• The BoE is expected to keep its monetary policy unchanged, while the Fed is seen hiking rates later this week.

The British Pound (GBP) extends losses against the US Dollar (USD) on Tuesday, with the GBP/USD pair hovering a few pips above five-week lows near 1.3465 at the London session opening times. Mixed  UK employment figures have failed to support the Pound, while the adverse monetary policy divergence between the Bank of England (BoE) and the Federal Reserve (Fed) keeps weighing on the pair with key monetary policy decisions ahead.

UK employment data released on Tuesday showed that the ILO Unemployment Rate remained steady at 4.9% in the three months to July, instead of picking up to 5% as the market had anticipated. Jobless claimants, however, increased by 27.8K, more than three times the 8.3K increase expected, and following a 11.8K drop in the previous month.

The main focus this week is the outcome of the Bank of England’s (BoE) monetary policy meeting, ending on Thursday. The BoE is widely expected to leave interest rates unchanged amid a split committee, unless UK Consumer Prices Index (CPI) figures, due on Wednesday, show a much larger-than-expected jump in inflation.

BoE Governor Bailey will not face the press after the release, and investors will be looking at the policy statement and the number of hawkish dissenters to assess the chances of an interest rate hike before the year-end. 

Beyond that, a report by The Telegraph newspaper revealed earlier on Tuesday that the cUK central bank plans to overhaul its bond-selling program and stop selling 20- and 30-year yields, to avoid putting further pressure on the UK’s borrowing costs amid the global bond market turmoil.

US Retail Sales and The Fed in focus

In the US, the main event on Tuesday will be the release of August retail Sales data, which is expected to have increased 0.9% following a 0.6% decline in the previous month.

These figures, however, are unlikely to have a significant impact on the US Dollar, as investors will remain focused on the Federal Open Market Committee's (FOMC) meeting, which ends on Tuesday, and, according to market expectations, will deliver the first interest rate hike of the last three years.

Chairman Kevin Warsh does not like to provide forward guidance, but Commerzbank strategists highlight that Fed expectations have shifted meaningfully. “The Fed funds futures are pricing in a total hike of 51bp by year-end, implying two rate hikes across the remaining three FOMC meetings this year,” say the experts, who also note that this policy repricing has contributed to the US dollar’s recovery as markets adjust to a more extended tightening profile.