GBP/USD falters ahead of UK labor and wages data dump

• GBP/USD settled below 1.2900 on Monday as Sterling flows tighten up.
• UK wages and jobs figures are due during Tuesday’s London market session.
• Key US CPI inflation data looms ahead in the midweek hump.

GBP/USD skidded back into familiar lows on Monday, squirting back below the 1.2900 handle as Cable traders brace for the latest round of UK wages and jobs data due early Tuesday. The US market session was a quiet affair, with markets tilting firmly into risk appetite but still bolstering the US Dollar into the high side.

The London market session will kick off Tuesday with a fresh print in UK Average Earnings for September and UK Employment Change for the rolling three-month period ended in October. UK Average Earnings are expected to tick up to 3.9% for the annualized three-month period ended in September, up slightly from the previous period’s 3.8%. On net job additions, the UK is expected to shed around 50K jobs, down sharply from the previous period’s net increase of 373K. The UK’s Claimant Count Change is also expected to rise in October, forecast to increase to 30.5K MoM compared to the previous print of 27.9K.

The US markets were thin with many institutions dark for the Veteran’s Day holiday, however US investors are expected to return to the fold during the midweek market session with a fresh update to US Consumer Price Index (CPI) inflation figures. October’s headline CPI is expected to accelerate to 2.6% YoY from the previous period’s 2.4%, with core CPI for the same period forecast to hold steady at 3.3% YoY. Thursday will follow up with US Producer Price Index (PPI) business-level inflation, which is also expected to tick higher to 2.9% YoY in October from 2.8%.

GBP/USD price forecast

The GBP/USD daily chart shows the pair trading just above a critical support level, marked by the 200-day EMA at 1.2860. This key moving average has been providing support, and the current candle’s proximity to this level suggests potential downside risk if the pair closes below it. The 50-day EMA, which sits around 1.3025, has been trending downward, indicating a bearish medium-term outlook. The price's position below this 50-day EMA also signals that bears maintain control, and any recovery toward this level could encounter strong resistance.

The MACD indicator below the chart supports the bearish bias, with the MACD line crossing below the signal line, indicating downward momentum. The histogram has turned slightly negative, reflecting a growing bearish sentiment. However, the MACD remains near the zero line, which suggests that momentum is not strongly established in either direction. If the histogram increases in size on the negative side, it would strengthen the bearish case and could lead to a deeper pullback.

In the near term, a decisive break below the 200-day EMA could trigger further losses, potentially opening the door toward the next support zone around 1.2750. On the other hand, if GBP/USD manages to hold above this key level and regains momentum, a bounce towards the 1.3000 mark and the 50-day EMA is possible. Overall, the pair appears vulnerable to downside risks, with bears likely eyeing a daily close below 1.2860 to confirm a more substantial bearish trend.

GBP/USD daily chart

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

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