GBP/USD Slips as UK Wage Growth Eases Ahead of Inflation Data

  • GBPUSD
    (${instrument.percentChange}%)

GBP/USD Analysis

The Bank of England has raised rates by 515 basis points since the October 2021 lift-off, but has not ruled out further tightening and has called for prolonged restrictive stance. Officials are troubled by a wage-price spiral, with high pay growth and inflation far above the 2% target, while the upcoming 9.8% increase in the minimum wage could put more pressure. [1]

However, policymakers have stayed on the sidelines for the past three meetings, as consumer prices have decelerated sharply over recent months and wages have eased. Today's data showed further moderation, since average total weekly earnings grew 6.5% in the September-November period, marking the smallest increase since March.

GBP/USD slides today as the slowdown in pay growth strengthens the case for peak rates and eventual cuts. This makes it vulnerable to the December lows (1.2499), but the downside appears well-protected and further losses towards and beyond 1.2307 have a higher degree of difficulty. The next leg of the move will be determined by Thursday's CPI inflation update from the UK.

However, the Bank of England likely has more work to do, compared to its US, which has already pointed to three rate cuts this year [2]. The monetary policy differential is supportive for GBP/USD, coming from two straight profitable months. Above the EMA200, bulls are on the driver's seat and can set fresh highs (1.2828), although 1.342 looks distant.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 16 Jan 2024 https://www.gov.uk/government/speeches/autumn-statement-2023-speech

2

Retrieved 19 Apr 2024 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20231213.pdf

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