Sterling Bulls Correct on UK Employment Data but Outlook Remains Positive

Summary:

The Pound Sterling (GBP) dropped below 1.3000 against the US Dollar (USD) following a slowdown in UK wage growth, according to new employment data.

BUY GBPUSD

Close Time

CLOSED

1.30200

Entry Price

1.31400

1.29500

1.33790 +0.00119 +0.09%

120.0

Pips

Profit

1.29500

1.31403

Exit Price

1.30200

Entry Price

1.31400

The Pound Sterling (GBP) has shown a muted performance against major currencies during Thursday’s London session, dipping below the 1.3000 mark against the US Dollar (USD). This decline follows the release of the United Kingdom's Average Earnings data, a critical indicator of wage growth and a significant factor in driving inflation within the service sector. The data indicated a slowdown in wage growth, which has been a major barrier to the Bank of England’s (BoE) confidence in proceeding with interest rate cuts.

Annual Average Earnings, both including and excluding bonuses, rose by 5.7% in the three months ending in May. This is a slight deceleration from the previous month's figures of 5.9% and 6%, respectively. Despite this slowdown, wage growth remains higher than what is consistent with achieving price stability, keeping inflationary pressures alive.

The Office for National Statistics (ONS) reported that employers added 19,000 jobs in the three months ending in May, contrasting sharply with a 140,000 reduction in the previous period. Additionally, the International Labour Organization (ILO) Unemployment Rate held steady at 4.4%, in line with expectations and previous figures.

Expectations for the BoE to initiate rate cuts from the August meeting have dwindled due to persistent core Consumer Price Index (CPI) inflation data for June. The UK's core CPI remained steady at 3.5%, driven by sticky service sector inflation.

In the broader market, the GBP/USD pair edged lower, nearing the psychological support level of 1.3000 during Thursday’s European session. Despite this dip, the GBP/USD pair has shown resilience, supported by a general market sentiment anticipating the Federal Reserve (Fed) will lower its key borrowing rates starting in September.

The scenario of heightened expectations for Fed rate cuts has exerted downward pressure on the US Dollar. The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, hovers near a four-month low around 103.70. Speculation for Fed rate cuts has been bolstered by signs from June’s Consumer Price Index (CPI) report, indicating a resumption of the disinflation process after stalling in the first quarter.

Cooling inflationary pressures have boosted confidence among Fed officials that price stability is achievable. Richmond Fed Bank President Thomas Barkin expressed optimism on Wednesday, highlighting the broadening disinflation as a positive sign. He noted that policymakers might debate whether it remains appropriate to describe inflation as elevated during the July policy meeting.

Technical Analysis

The Pound Sterling dropped to near 1.3000 against the US Dollar following the UK wage growth report. Despite this decline, the overall trend remains bullish as the GBP/USD pair trades close to a two-year high of 1.3045 recorded on Wednesday.

Technically, the GBP/USD price attempted to breach the bullish channel’s resistance but encountered a solid barrier, showing some temporary bearish bias influenced by the Relative Strength Index (RSI) negativity. The pair is expected to resume positive trades, targeting the next main station at 1.3140.

The 50-day Exponential Moving Average (EMA) supports the suggested bullish wave. However, breaking below 1.2960 followed by 1.2890 could halt the expected rise and push the price to decline, targeting the bullish channel’s support line before any new attempt to rise.

The expected trading range for today is between 1.2940 support and 1.3090 resistance, with the trend forecast remaining bullish. The 14-period RSI jumps near 70.00 for the first time in over a year, indicating strong upward momentum.

TRADE RECOMMENDATION

BUY GBPUSD

ENTRY PRICE : 1.3020

STOP LOSS : 1.2950

TAKE PROFIT : 1.3140

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Sterling Bulls Correct on UK Employment Data but Outlook Remains Positive

Risk Disclosure