Capital Damanga

GBP/USD Pushes Higher on UK Jobs Data
GBP/USD Pushes Higher on UK Jobs Data
The British Pound jumped to its highest level against the US Dollar in six months after data showed a pickup in UK employment. However, the currency has stalled in recent trading sessions in tandem with a reversal in fortunes for global stock markets.

Investors expect the Fed to hike interest rates this week, boosting the US dollar against a weakening pound. But, the UK unemployment rate has risen in October to a record 3.7%, fuelling fears about recession and weakening demand for the currency.

Despite the data, the GBP/USD pair remains supported on expectations that the Fed will slow down its rate hikes this year. This, coupled with signs of an ongoing loosening of Covid restrictions in China, has been a key driver of risk sentiment, which helped to drive the pound higher.

The dovish stance of the Bank of England has also been a key factor in GBP/USD’s rise. The BoE is aiming to get off zero rates at a faster pace than the Fed, and pursue a more cautious pace of rate increases than the U.S. The dovish tone has helped to boost the US dollar against the Pound, but the softer UK inflation figures could see the British currency fall again.

Nomura’s Rochester agrees that the softer data will likely lead to a broader GBP/USD rally, but cautions that “there may be some downside risk if the BoE continues to play down its aggressive monetary policy stance.”

Sterling is also expected to fall on Wednesday as inflation data is released. Headline inflation is expected to slow down, while core prices are seen softening too. The UK CPI report will also impact the exchange rate, as well as the BoE’s interest rate decision on Thursday.

While GBP/USD is expected to trade near the 50-day EMA (exponential moving average), a break below this support will indicate that the market is getting overstretched and a further reversal may occur.

Nevertheless, this is a long way off from the 61.8% retracement level, which is currently located around the mid-$1.24 region. A move above the highlighted retracement will give bulls an opportunity to retest the highs.

The GBP/USD exchange rate is expected to remain range-bound as traders continue to weigh the release of UK inflation data on Wednesday against the Federal Reserve’s upcoming interest rate hike. Moreover, the USD is also expected to trade at a lower level as the upcoming Federal Reserve interest rate decision will have an impact on the price of the Dollar.

The Federal Reserve is expected to raise interest rates by 25 basis points, while the Bank of England is expected to leave rates unchanged. Meanwhile, European central banks will also be making decisions on Thursday. In addition to these, flash CPI and manufacturing data is scheduled to be released in Europe and the US. The UK is also expected to report its GDP.