GBP/USD Forecast: UK jobs report does little to help Pound Sterling rebound

Posted by Admin April 16, 2024 Jobs

GBP/USD trades below 1.2450 in the European session on Tuesday.
ILO Unemployment Rate in the UK rose to 4.2% in the three months to February.
The cautious market mood could cap the pair’s recovery attempts.

GBP/USD staged a rebound toward 1.2450 after setting a new multi-month low near 1.2400 earlier in the day on Tuesday. The technical outlook suggests that the pair’s bearish bias remains intact.

The data published by the UK’s Office for National Statistics (ONS) showed that the ILO Unemployment Rate rose to 4.2% in the three months to February from 4%. In the same period, annual wage inflation, as measured by the changed in the Average Earnings Including Bonus, held steady at 5.6%. Pound Sterling struggled to benefit from this report, as the unexpected increase in the unemployment rate offset any potential gains the currency could register on the persistent wage inflation reading.

Pound Sterling price this week

The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies this week. Pound Sterling was the weakest against the Swiss Franc.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.30%	0.20%	0.29%	0.97%	0.77%	0.97%	-0.06%
EUR	-0.28%		-0.09%	0.02%	0.69%	0.50%	0.70%	-0.34%
GBP	-0.19%	0.12%		0.11%	0.79%	0.59%	0.79%	-0.25%
CAD	-0.28%	0.02%	-0.11%		0.69%	0.49%	0.67%	-0.34%
AUD	-0.98%	-0.67%	-0.78%	-0.66%		-0.17%	0.01%	-1.01%
JPY	-0.76%	-0.49%	-0.58%	-0.47%	0.14%		0.19%	-0.84%
NZD	-0.96%	-0.66%	-0.78%	-0.66%	0.02%	-0.18%		-1.02%
CHF	0.06%	0.36%	0.26%	0.36%	1.00%	0.83%	1.01%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

On the other hand, the US Dollar (USD) gathered strength against its rivals in the American session on Monday as the upbeat Retail Sales data cemented the view that the US economy is strong enough for the Federal Reserve (Fed) to continue to delay a policy pivot. According to the CME FedWatch Tool, markets are currently pricing in a nearly 80% probability that the Fed will leave the policy rate unchanged in June.

Later in the day, Fed Chairman Jerome Powell will speak on the economic outlook and the monetary policy. Investors will also keep a close eye on geopolitical headlines. Israel is reportedly discussing a response to Iran. At the time of press, the UK’s FTSE 100 Index was down 1.5% on the day and US stock index futures were trading modestly lower.

In case safe-haven flows dominate the financial markets in the second half of the day, the USD could preserve its strength and limit GBP/USD’s upside. A de-escalation of geopolitical tensions, on the other hand, could open the door for an extended recovery.

GBP/USD Technical Analysis

GBP/USD trades within the lower half of the descending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart stays near 30, reflecting the bearish bias.

On the downside, 1.2400 (lower limit of the descending channel) aligns as first support before 1.2370 (static level from November) and 1.2300 (static level from November). In case GBP/USD stabilizes above 1.2450 (static level), it could target 1.2500 (psychological level, mid-point of the descending channel) and 1.2560 (static level).

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, aka ‘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.