Pound Sterling Struggles Against US Dollar as Investors Anticipate Key UK Employment Data

Economic

Summary:

The Pound Sterling remains under pressure against the US Dollar as investors await key economic data this week, including the UK labor market report and the US inflation figures.

SELL GBPUSD

EXP

EXPIRED

1.28900

Entry Price

1.27350

1.30000

1.33249 -0.00063 -0.05%

Pips

EXPIRED

1.27350

1.25229

Exit Price

1.28900

Entry Price

1.30000

The Pound Sterling (GBP) faced notable weakness against the US Dollar (USD) in Monday’s London trading, dropping to near the 1.2900 level. This decline came as the US Dollar continued its Friday recovery, with a marked uptick in the US Dollar Index (DXY), which measures the currency’s strength against a basket of six major peers, climbing above 105.30. The market movements are largely driven by growing expectations of a shift in US fiscal policies and the anticipation of crucial economic reports this week, particularly the October US inflation data and UK labor market figures for the three months ending September.

The Greenback’s strength has been attributed to mounting expectations for increased investment and government spending in the United States, bolstered by speculation that the Republican Party will soon take control of both the Senate and the House of Representatives. Should this come to pass, it would pave the way for faster implementation of policies under the Trump administration, including higher import tariffs and tax cuts. While such changes would likely increase the US fiscal deficit, they could also contribute to inflationary pressures, prompting the Federal Reserve (Fed) to adopt a more restrictive stance on monetary policy.

However, despite this growing fiscal optimism, Fed Chair Jerome Powell tempered expectations of any imminent shift in the central bank’s policy framework. Last Thursday, the Fed reduced interest rates by 25 basis points to a target range of 4.50%-4.75%, underscoring its cautious approach to monetary easing. Powell’s remarks pushed back against the notion that fiscal changes would lead to an immediate tightening cycle.

This week, investors will closely monitor speeches from various Fed officials on Thursday, as well as the highly anticipated US Consumer Price Index (CPI) data for October, due for release on Wednesday. The CPI report is projected to show a slight acceleration in annual headline inflation, rising to 2.6% from 2.4% in September. Core inflation, which excludes food and energy prices, is also expected to show a steady increase of 3.3%. These data points will play a crucial role in shaping market expectations for the Fed’s actions in its December meeting.

The Pound Sterling is taking a more cautious stance on Monday, with its performance against major peers remaining muted as investors await the release of the UK’s labor market data for the three months ending September. The report, set for publication on Tuesday, is expected to provide valuable insights into the health of the UK economy and could have significant implications for the Bank of England’s (BoE) monetary policy decisions in the coming months.

Analysts are predicting that the UK unemployment rate has risen to 4.1% from 4.0% in the previous quarter, marking a slight uptick in joblessness. Of equal importance to investors will be the Average Earnings data, a key indicator of wage growth, which influences consumer spending and overall inflation. Higher wage growth has been a significant contributor to inflationary pressures, especially in the services sector, which is closely scrutinized by BoE officials when setting interest rates.

In particular, economists anticipate that Average Earnings Excluding Bonuses grew by 4.7% in the three months to September, slower than the previous reading of 4.9%. A softer pace of wage growth could strengthen market expectations for further interest rate cuts by the BoE, as it would signal a potential easing of inflationary pressures in the services sector. Conversely, higher wage growth figures would likely dampen expectations for cuts, as it would imply persistent inflationary risks.

The BoE made its most recent policy move last week, lowering interest rates by 25 basis points to 4.75%, in line with market expectations. In his accompanying remarks, BoE Governor Andrew Bailey suggested that the central bank would continue to take a measured approach to monetary easing, emphasizing the importance of bringing inflation down sustainably to its 2% target. The outcome of the labor market data will likely shape market expectations for the BoE’s December meeting, as further signs of economic cooling may prompt a more aggressive policy shift.

Technical Analysis

From a technical perspective, the GBP/USD currency pair has shown clear signs of bearish momentum. Following a failed attempt to breach the 1.3000 level last Friday, the pair has retreated and is now targeting the first key support at 1.2866. Should the price break through this level, the next significant target would be 1.2735, indicating further downward correction.

The bearish outlook remains intact, supported by the Exponential Moving Average (EMA) 50, which indicates a prevailing downtrend. A break and sustained move above 1.3000 would be required to negate this bearish bias and open the door for a potential bullish reversal. For now, traders will be watching the price action closely, with an expected range for today between 1.2830 (support) and 1.2990 (resistance).

TRADE RECOMMENDATION

SELL GBPUSD

ENTRY PRICE: 1.2890

STOP LOSS: 1.3000

TAKE PROFIT: 1.2735

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