Pound Sterling Maintains Stability as Investors Await Key UK Labor Market and Inflation Reports.
Fundamental Overview:.
The Pound Sterling (GBP) held steady against major currencies on Monday as market participants adopted a cautious approach ahead of the UK’s upcoming employment and inflation data. The Bank of England (BoE) Governor Andrew Bailey anticipates a slowdown in labor demand, while Federal Reserve official Logan emphasized the need for continued caution regarding interest rate cuts.
Investors are closely monitoring the UK employment data for the three months ending December, set for release on Tuesday. This report will provide insights into the impact of Chancellor Rachel Reeves’s decision to raise employers’ National Insurance (NI) contributions by 1.2% to 15%, effective from April. Since the announcement, private sector hiring has slowed significantly, with the UK economy adding just 35,000 workers in the three months ending November, down sharply from 173,000 in the August-October period.
BoE Governor Bailey noted signs of softness in the labor market during European trading hours but expressed confidence that the disinflation trend remains intact. He stated that current economic conditions do not support the view that inflation will become more persistent.
The UK Office for National Statistics (ONS) is expected to report that the ILO Unemployment Rate rose to 4.5% in December from 4.4% previously. Additionally, market participants will closely watch the UK Average Earnings data, a key indicator of wage growth, which has been a significant driver of inflation in the services sector. Average earnings, including and excluding bonuses, are projected to rise to 5.9% from the prior 5.6%. Strong wage growth could heighten concerns about persistent inflationary pressures.
In its February monetary policy statement, the BoE cautioned that inflation could accelerate before resuming its downward path toward the 2% target, partly due to rising energy prices. Weakening labor market conditions combined with sustained inflation expectations from strong wage growth could increase fears of stagflation.
Later this week, investors will also focus on key economic releases, including the UK Consumer Price Index (CPI) on Wednesday and Retail Sales data on Friday.
GBP/USD Technical Analysis – Daily Chart:
Technical Overview:
- GBP/USD is trading within an upward channel.
- The pair is moving above the 10 and 50 Simple Moving Averages (SMA).
- The Relative Strength Index (RSI) is in the buying zone, while the Stochastic oscillator suggests a neutral trend.
- Immediate Resistance level: 1.2630
- Immediate Support level: 1.2517
How to Trade GBP/USD:
After a sharp decline, GBP/USD found support and reversed to the upside, surpassing the previous swing high and maintaining levels above it. The pair is currently trading within an upward channel and has broken above a key resistance level. The price is now undergoing a pullback, and if it holds above the 61.8% Fibonacci support, further upside momentum could follow.
Read More – Daily Technical Analysis
Trade Suggestion:
- Limit Buy: 1.2547
- Take Profit: 1.2669
- Stop Loss: 1.2489