In Monday’s European session, the Pound Sterling (GBP) maintained a tight consolidation around 1.2850 as investors exercised caution ahead of a data-packed week. The GBP/USD pair traded sideways in anticipation of critical releases, including the United Kingdom Employment data scheduled for Tuesday and the monthly Gross Domestic Product (GDP) report on Wednesday.
Investors are particularly keen on the UK labor market data for the three months ending in January, seeking insights into job and wage growth momentum—a crucial factor influencing persistent inflationary pressures. If wage growth remains robust, market expectations for Bank of England (BoE) rate cuts, initially anticipated for August, may be pushed back. BoE policymakers have acknowledged the potential for inflation to reach the 2% target by summer but caution that flare-ups could occur thereafter.
Beyond the UK borders, the Pound Sterling’s trajectory will be influenced by market sentiment, guided in part by the release of the United States Consumer Price Index (CPI) data for February on Tuesday. Strong inflation figures might challenge expectations of a Federal Reserve (Fed) interest rate reduction in June. Despite firm prospects for a Fed rate cut in June, highlighted by cooling labor market conditions in the US Nonfarm Payrolls (NFP) report for February, concerns persist as the Unemployment Rate rose, and wage growth softened.
Pound Sterling Consolidates Ahead of Busy UK Economic Calendar
The Pound Sterling fluctuates within a narrow range around 1.2850 following a robust rally, with investors awaiting further clarity on Bank of England interest rates.
While the BoE is anticipated to cut interest rates in the August meeting after over two years of policy tightening, the upcoming wage growth data for the three months ending in January could influence expectations.
Investors are expecting steady wage growth excluding bonuses at 6.2%, while Average Earnings including bonuses are forecast to grow at a slightly slower pace of 5.7% against the previous reading of 5.8%. Robust wage growth would temper hopes of imminent rate cuts by the BoE.
BoE policymakers emphasize that wage growth remains a significant obstacle to achieving progress in consumer price inflation towards the 2% target. Wage growth remains double the required consistency for inflation to return to target, with strong momentum particularly in the services sector, where prices accelerated between November and January.
In addition to labor cost growth data, investors will scrutinize broader labor market indicators as the BoE seeks to achieve full employment and price stability to fulfill its dual mandate. The Unemployment Rate for the three months ending January is expected to remain unchanged at 3.8%.
Amid an optimistic broader market sentiment, expectations persist for a Federal Reserve rate cut in the June policy meeting following the release of the US Employment report, which highlighted softening wage growth and a higher Unemployment Rate. According to the CME Fedwatch tool, there is a 57% likelihood of a 25 basis points rate-cut decision being announced in June.
