On Tuesday at 7 am UK time, UK labour data is due to be released at a crucial time to see how the UK labour market is doing. After the Bank of England started to send out more mixed signals about the upcoming path of interest rates in the UK, governor Bailey said last week that we are no longer in a phase ‘where it is clear that rates need to rise and we’re now data-driven as policy restrictive’.

Furthermore, we’ve seen market pricing unwind the terminal rate of 6% for the Bank of England and it’s currently down to around 5.6%. On top of this, the latest CFTC report is showing pound longs being reduced, so with the UK labour data out on Tuesday watch for a big miss. If we see a big miss in the data then market participants will further anticipate a slowdown in UK interest rates. This could potentially send the pound lower. Furthermore, notice this strong seasonal pattern in the GBPJPY over the last 15 years. The GBPJPY has fallen on average over 2 1/2% between the 12th of September and the 9th of October. Will, UK labour data send the pound lower on Tuesday?

Major Trade Risks: The major trade risks here are if the UK labour market remains strong and/or if US yields continue to rise which would weaken the JPY. The GBPJPY outlook also needs JPY strength and that is highly uncertain at the moment due to the path of US rates.

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