GBP/USD Analysis: Uptrend Remains Cautious

  • According to Forex market trading, the pound sterling briefly dipped before recovering to around $1.25 as traders digested recent labor data and monetary policy expectations.
  • According to official announcements and the economic calendar, the UK unemployment rate rose for the third month and wage growth remained at 6%, in line with Bank of England (BoE) expectations, reinforcing bets that the central bank may soon start cutting interest rates.

(Click on image to enlarge) 

GBP/USD Analysis Today 15/5: Uptrend Remains Cautious (graph)

At its May meeting, the BoE held interest rates steady, although two members called for a rate cut, signaling a shift towards lowering borrowing costs. Governor Bailey has hinted at potential future rate cuts, suggesting a more flexible monetary policy stance going forward.

Traders slightly increased the probability of a rate cut in June, while a 25-basis-point cut in August remains fully priced in. According to forex trading platforms, the pound rose after the release of surprisingly strong wage figures in the UK. However, upside potential is likely to be limited by another set of labor market statistics showing rising unemployment rates.

Meanwhile, the pound sterling rose against the euro to 1.1642 after the Office for National Statistics (ONS) said wages in Britain, including bonuses, rose by 5.7% on an annual basis in March, much higher than the consensus forecast of a 5.3% reading. Obviously, when bonuses are excluded from the wage data, the figure is even higher at 6.0%.

Clearly, this was before the minimum wage was raised in April. Moreover, these figures suggest that wage pressures are continuing to run ahead of inflation, which could mean that domestically generated inflation in Britain will remain high for some time, potentially delaying rate cuts.

However, the pound's gains were ultimately limited (GBP/USD rose back to 1.2558) as there were signs of further labor market weakness elsewhere in today's data releases.

According to the announcement, the UK economy shed 177,000 jobs in the three months to March, up from 156,000 in the previous period. The unemployment rate rose to 4.3% from 4.2%. This suggests that the scope for wage growth at inflation-generating levels is limited, and investors are betting that this scope will eventually shrink sharply as a result. In short, companies will not need to stockpile labor if there are more job seekers. For now, forex markets are likely to look past the hot wage figures, and this is reflected in the relatively muted sterling response.

 

Technical forecasts for the GBP/USD pair today:

After interacting with the job and wage numbers in Britain, the price of the pound sterling against the US dollar GBP/USD will be affected by the announcement of US inflation numbers today. It will have a strong and direct reaction to the markets’ expectations for the future of raising US interest rates in the future. If the readings are less than expected, bulls may have the opportunity to move towards the resistance levels of 1.2630 and 1.2700, respectively. As mentioned before, the movement around and below the 1.2500 level will remain the most important for bears in emphasizing control. Finally, we still prefer selling GBP/USD at every upward level.


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