GBP/USD came under heavy selling pressure in early European trade on Tuesday, as the pair fell to the mid-1.3200s. This drop reaches its bottom since the first week of August. It’s due mostly to a very ugly report from the UK’s labor market. Now all eyes from traders are on significant resistance levels. As they weigh the implications of the latest economic data, they’re weighing potential recovery thresholds.
That GBP/USD drop accelerated when UK jobless benefits claims jumped 25.8K in September. This was a sharp rebound from a downwardly revised loss of 2.0K in August. Average earnings, including bonuses, shot up by 5.0% for the quarter ending in August. In the background, underlying pay growth slowed, too, with regular earnings (excluding bonuses) easing to 4.7%. These figures have intensified speculation regarding the Bank of England’s (BoE) potential to continue gradually cutting interest rates, which has weighed heavily on the British Pound.
Though GBP/USD is trying to recover, analysts are warning that any further upside could be limited near the 1.3365 supply zone. A clean break over the 1.3300 level would trigger a short-covering rally. That momentum could be enough to lift the pair through the key 1.3400 level of resistance. Traders will want to watch the next major obstacle in the 1.3465-1.3470 area. This point would set up additional roadblocks to any upward trend.
Traders in the market will be watching the August monthly swing low in the vicinity of 1.3140 area. They think GBP/USD would be able to touch this level before eventually retreating to the psychological level of 1.3100. The current 200-day Simple Moving Average (SMA) for GBP/USD is situated near 1.3180, further illustrating the technical challenges facing the currency pair.
In the UK, worries over the government’s fiscal position are growing ahead of the Autumn budget due in November. Yet this uncertainty is currently rocking confidence in the GBP. Recent labor market data only continues to stoke these fears. It means that any recovery we try to piece together will likely be fleeting and with less reach.
There are fears that a long-running US government shutdown would damage the nation’s economic prospects and dampen Federal Reserve hawkishness. Even with that positive news, DXY has shot up for the second day in a row. The USD sits at range highs not seen since early-August. This would indicate that larger appreciation is still out of reach because of uncertainties that persist.