The Pound Sterling (GBP) demonstrates sheer volatility against its major currency peers on Tuesday, following the release of the United Kingdom (UK) labour market data for the three months ending in October.
The British currency initially responded positively to the employment data, as the report showed that Average Earnings Excluding Bonuses, a key measure of wage growth, rose at an annualized pace of 4.6%, faster than estimates of 4.5%. Additionally, the reading of the three-months ending September has been revised higher to 4.7% from 4.6%.
Average Earnings Including Bonuses grew at a faster pace of 4.7%, compared to expectations of 4.4%, but slower than the prior release of 4.9%, revised higher from 4.8%.
However, the upside reaction could falter as the labor demand has deteriorated further, with the ILO Unemployment Rate rising to 5.1%, as expected, from the prior reading of 5%. In addition, the UK labor force has witnessed lay-offs again. The UK economy shed 17K jobs in the three-months ending October, but lower than the prior reading of 22K lay-offs.
Signs of higher-than-projected wage growth and weak labor demand are expected to force Bank of England (BoE) officials to perform a delicate balancing act in the monetary policy meeting on Thursday. According to market expectations, the BoE is expected to cut interest rates by 25 basis points to 3.75%.
Before the monetary policy announcement, investors will also focus on the UK Consumer Price Index (CPI) data for November, which will be released on Wednesday.
Later on Tuesday, investors should brace for more volatility in the Pound Sterling as the preliminary S&P Global Purchasing Managers’ Index (PMI) data for December is scheduled to be published at 09:30 GMT.
Pound Sterling consolidates against US Dollar ahead of US NFP data
- The Pound Sterling trades flat near 1.3370 against the US Dollar (USD) during the European trading hours on Tuesday. The GBP/USD pair recovers initial losses after the release of the UK employment data. The Cable is expected to trade with caution ahead of the United States (US) Nonfarm Payrolls (NFP) data for October and November, which will be published at 13:30 GMT.
- During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades flat around 98.25.
- Investors will closely monitor the US NFP to get cues on the current labor market status. The US NFP report is expected to show that the economy created 40K fresh jobs in November. Meanwhile, the Unemployment Rate is seen remaining steady at 4.4%.
- The employment data will significantly influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook.
- Broadly, the DXY is underperforming its major peers, trading close to its eight-week low of 98.14 posted last week, as traders are increasingly confident that the Fed will deliver more interest rate cuts than projected in last week’s policy announcement.
- According to the CME FedWatch tool, there is a 74% chance that the Fed will cut interest rates at least two times by the end of 2026. Meanwhile, the Fed’s dot plot in the Summary of Economic Projections showed that policymakers see the Federal Fund Rate falling to 3.4% by 2026, indicating only one more interest rate cut from current levels of 3.50%-3.75%.
- In Tuesday’s session, investors will also focus on the US Retail Sales data for October and the flash S&P Global Purchasing Managers’ Index (PMI) data for December.
Technical Analysis: GBP/USD strives to break above 1.3400
GBP/USD trades higher around 1.3370 as of writing. The pair holds above a rising 20-day Exponential Moving Average (EMA), currently at 1.3294, keeping the near-term bias pointed higher.
The 14-day Relative Strength Index (RSI) at 61 reflects positive momentum without overbought conditions.
Measured from the 1.3783 high to the 1.3008 low, the 38.2% Fibonacci retracement at 1.3304 has been cleared, underpinning the recovery tone. However, the 50% Fibonacci retracement at 1.3395 marks immediate resistance, and a break higher would extend the rebound towards the 61.8% Fibo retracement at 1.3488. Failure to top that barrier could see consolidation back toward the moving average.
The trend remains supported while price sustains above the ascending 20-day EMA, though a drop beneath 1.3286 would open the door for further downside towards the December low of 1.3180.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Source: https://www.fxstreet.com/news/pound-sterling-attracts-bids-on-better-than-projected-uk-wage-data-202512160833
