The UK job market is showing signs of cooling down, yet unemployment remains low at 4.2%, signaling a mixed economic landscape. Despite these shifts, the economy is expected to remain resilient in 2025. The Bank of England has opted for a cautious approach, keeping interest rates steady in December, as inflation eased to 2.6% in November compared to the same period last year. Meanwhile, the British pound continues to face challenges against the US dollar, with the GBP/USD testing critical support levels.
Wage growth of 5.2% persists as one of the bright spots amidst a cooling job market. This wage increase provides some relief to households despite broader economic uncertainties. The Bank of England's decision to maintain steady rates reflects its cautious stance in navigating economic stability while inflation remains subdued.
In contrast, the Federal Reserve has adopted a more aggressive outlook for 2025, potentially setting the stage for diverging monetary policies between the UK and the US. The strength of the US dollar continues to exert pressure on the British pound, with the GBP/USD pair sitting at nine-month lows near 1.2300. The pair is testing the 200-day moving average around the 1.9850 handle, with a potential break lower facing the 100-day moving average at 1.9700.
Recently, GBP/USD has printed a fresh low, inching close to the 2024 yearly low at 1.22987. The extended strength of the US dollar undermines the pair, contributing to its recent price decline. This downturn has triggered significant liquidations across the crypto market, with total liquidations reaching $694.11 million in the last 24 hours.
The expectation that the UK economy will remain resilient in 2025 provides a counterbalance to current economic challenges. The moderate inflation rate of 2.6% offers some breathing room for policymakers as they assess future economic strategies. The Bank of England's cautious approach suggests a focus on maintaining economic stability without exacerbating inflationary pressures.
On the international stage, the contrasting outlooks of the Bank of England and the Federal Reserve highlight differing economic conditions and policy responses. While the UK maintains a steady course, the US appears poised for more aggressive monetary actions in the coming years.
As GBP/USD navigates these turbulent waters, market participants remain vigilant for potential shifts in sentiment and currency movements. The pair's proximity to critical support levels underscores the fragility of its current position amid ongoing economic and market dynamics.