The British Pound Sterling is holding steady against the US Dollar, with the GBP/USD pair trading within Friday's range and aiming to break decisively above the 38.2% Fibonacci retracement level around 1.2620. The near-term outlook for the GBP/USD pair has shifted to bullish as it maintains its position above the 50-day Exponential Moving Average (EMA), which stands at approximately 1.2500. This development comes amid a pivotal week for the UK economy, packed with significant data releases that could influence currency movements.
The UK economy added 35,000 workers in the three months ending November, a stark slowdown from the 173,000 additions seen between August and October. Analysts expect the Office for National Statistics (ONS) to report an increase in the ILO Unemployment Rate to 4.5% in December, up from 4.4%. Meanwhile, average earnings, both including and excluding bonuses, are anticipated to accelerate at a robust pace of 5.9%, compared to the previous release of 5.6%.
In the United States, inflation data has added complexity to the currency market. The Consumer Price Index (CPI) and Producer Price Index (PPI) figures for January came in hotter than expected, exerting pressure on the US Dollar Index (DXY), which struggles to maintain immediate support at 106.70, a level not seen in over two months.
The GBP/USD pair remains largely sideways, with bullish momentum indicated by the 14-day Relative Strength Index (RSI) advancing above 60.00. Investors are eyeing the 50% Fibonacci retracement level at 1.2767 as a key resistance zone for the pair, while the February 3 low of 1.2250 acts as crucial support.
Market participants are closely monitoring UK labor market data for insights into business sentiment following Chancellor of the Exchequer Rachel Reeves’s announcement regarding increased employer contributions to National Insurance (NI). The UK Average Earnings data, a vital measure of wage growth, will be released on Tuesday, setting the stage for further market reactions.
The UK Consumer Price Index (CPI) and Retail Sales data for January are slated for release on Wednesday and Friday, respectively. These reports will provide clarity on consumer spending and inflationary pressures within the UK economy.
Additionally, investors will pay attention to Bank of England (BoE) Governor Andrew Bailey's speech scheduled for Tuesday. His views on the monetary policy outlook will be critical as markets gauge future interest rate decisions by the central bank.
Across the Atlantic, Dallas Federal Reserve Bank President Lorie Logan emphasized a cautious approach to interest rates amidst evolving economic conditions. Her statement reflects a measured stance by the central bank in response to economic indicators.
"I think we're in a good position right now to watch the data over the coming months and taking our time to really go look at the data and see how these potential changes are to evolve," said Dallas Federal Reserve Bank President Lorie Logan.
Investors are also on alert for any signals from Federal Reserve policymakers regarding interest rate trajectories, as this could have cross-border implications for currency valuations.