UK vs US Jobs and GDP: What Next for Cable?

Cable is in for an active week, but with only second-tier data from the UK, the main driver could be what happens with US jobs figures as markets wonder if the British economy can save the government's Autumn Budget.

The Key Developments

• The UK's final reading of Q2 GDP is expected to confirm growth slowing to 0.3% from 0.7%.
• Economists attribute the UK economy exceeding their forecasts to dynamism in trade and increased government spending, which is likely to taper off in the coming months and slow growth.
• The US jobs market is expected to remain weak, allowing the Fed to cut and support the economy, while the BOE is forced to hold rates high due to high inflation, hindering growth.

UK Growing, But Faltering

The , at least according to preliminary data, which is expected to be confirmed on Tuesday. The UK will disclose its final reading of Q2 GDP, projected to match the preliminary estimate of 0.3% growth for the quarter. That is, unless there is a surprise revision to the upside, like what happened in the US last week. Regardless, it is still the second time in a row that the UK economy beat economists' forecasts, but those economists are still predicting a slowdown for the rest of the year. This could increase the difficulties faced by the government as it tries to plug a £44 billion hole in its finances for next year without raising debt or taxes. Chancellor Rachel Reeves had made that pledge to calm markets after raising taxes in her first budget, which is widely seen by business owners, economists, and analysts as slowing the economy and increasing inflation.

Economists argue that the UK economy has outperformed , despite a decline in shipments to the US. Initially, businesses prepared for US President Donald Trump's "reciprocal" tariffs in April, and subsequently, the UK became the first to secure a trade deal at the lowest tariff rate. On the other hand, economists point to subdued domestic demand, suggesting that GDP growth was driven primarily by increased government spending. Combined with higher taxes, the outcome has left the BOE fighting with restrictive rate policy likely to slow UK growth in the coming months and next year.

What's Next For Cable?

Tuesday sees the release of the US August JOLTs data, with the number of open positions expected to once again fall to 7.1 million from 7.2 million in July. The number of people seeking work has surpassed the number of open jobs for the first time since the pandemic, a sign of increasing weakness in the US labour market. While the current situation leaves the Fed likely to keep easing, the BOE still has to contend with high inflation. But that widening interest rate gap might not help the pound. Persistent concerns about the country's growth outlook and tax policy may , potentially weakening the pound, at least until the uncertainty around the budget is resolved.

Cable Looking to Find a New Direction

The GBPUSD has been stuck in a sideways trend throughout the summer as investors assessed the outlook for the Fed and the BOE. With greater clarity on the data, the pair could finally break in a new direction. It's just bouncing off support at 1.3300 for the second time, which could form a double bottom, allowing it to head back to the middle Bollinger Band at 1.3520. If it breaks through resistance, it could head toward the September high of 1.3360. On the other hand, if it proves to be a false double bottom, then the pair could move towards support at the August low of 1.3200.

Source: SpreadEx | GBPUSD, Daily chart