The British Pound (GBP) held onto its gains against the US Dollar (USD) on Friday, trading around 1.2770 in European hours. The GBP/USD pair saw a sharp rise the previous day following the release of the US Initial Jobless Claims data for the week ending November 29. The report revealed that the number of first-time jobless claims rose to 224,000, surpassing both market expectations and the previous week’s figure of 215,000.
With the US Nonfarm Payrolls (NFP) report for November set for release later today at 13:30 GMT, market activity is expected to remain subdued. Investors are closely watching the NFP data for clues on the Federal Reserve’s (Fed) potential policy direction, particularly ahead of its December 18 meeting. The Fed has been in an easing cycle since September, citing concerns over weakening labor demand and the prospect of inflation returning to its 2% target.
Economists forecast that the US economy added 200,000 new jobs in November, a significant rebound from October’s much lower 12,000 increase. October’s payrolls were affected by weather-related disruptions and labor strikes at Boeing plants. The unemployment rate is expected to tick up to 4.2% from 4.1%.
Wage growth, a crucial factor for inflation and monetary policy, is also in focus. Analysts anticipate a year-on-year increase in Average Hourly Earnings of 3.9%, a slight slowdown from October’s 4%. On a monthly basis, wage growth is expected to rise by 0.3%, down from 0.4% previously.
If the labor market shows signs of slowing down and wage growth moderates, market expectations for a Federal Reserve rate cut will likely strengthen. Conversely, strong job numbers could temper these expectations. Currently, the CME FedWatch tool suggests a 72% chance of a 25 basis point rate cut this month, with the remainder anticipating no change in rates.
Pound Sterling Outperforms Major Rivals as BoE Expresses Inflation Concerns
On Friday, the Pound also outperformed many of its major counterparts as investors reacted to hawkish comments from the Bank of England (BoE). Megan Greene, an external member of the BoE’s Monetary Policy Committee (MPC), stated that UK inflation could remain above the central bank‘s 2% target for the medium term, citing persistent price pressures. Greene expressed concern that wage growth was not falling as quickly as hoped, which could complicate efforts to bring inflation under control.
BoE Governor Andrew Bailey echoed Greene’s concerns on Wednesday, acknowledging that the BoE still has work to do to bring inflation below its target but expressed confidence that the disinflation process was progressing.
With no major UK economic data expected before the BoE’s December 19 policy meeting, traders are focused on the likelihood of an interest rate decision. Market consensus suggests that the BoE will leave rates unchanged at 4.75%.
Technical Outlook: GBP/USD Remains Above Key Moving Averages
Technically, the Pound remains buoyed above the 1.2770 mark, having held its ground above the 20-day Exponential Moving Average (EMA) at 1.2715. However, the broader trend remains bearish, with the pair trading below the 200-day EMA, currently around 1.2825.
The Relative Strength Index (RSI) has rebounded from oversold levels, suggesting a neutral short-term outlook. However, the downside bias remains intact. On the downside, support is expected near the upward-sloping trendline around 1.2500, originating from the March 2023 low of 1.1800. On the upside, the 200-day EMA represents a key resistance level.
As market participants await crucial US employment data and the BoE’s upcoming decisions, the direction of the Pound will likely hinge on these developments.
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