GBP/USD Steady after UK Wage Growth, Turns to US & UK CPI
Strong UK Employment
Unemployment rate for October-December period remained at 3.7%, while regular pay (excluding bonuses) grew even more to 6.7% 3m/y, which is "the strongest growth rate seen outside of the coronavirus (COVID-19) pandemic period". Average weekly earnings including bonuses though, eased to 5.9% 3m/y and the lowest since July 2022. [1]
The labor market "remains tight by historical standards" according to the Bank of England, with officials also worried about the high wages, which put pressure on inflation and i don't think today's report will do much to assuage these concerns. [2]
UK & US Inflation
We expect more releases from the Old Albion this week, with focus now shifting to Wednesday's January CPI Inflation data. Headline CPI had eased to +10.5% y/y in December, but the Core reading was sticky, staying at 6.3%,
The BoE expects headline inflation to fall "to around 4% towards the end of this year and softened its rhetoric earlier this month around in regards to the policy path. However, it warned that further tightening would be needed in case of "evidence more persistent pressures". [2]
Markets also brace for today's CPI inflation update from the United States. Chair Powell recently acknowledged easing pressures, as he talked again last week of the "disinflationary process" that has begun. He warned though that it going to "bumpy" and will need "quite a bit of time" [3]. The previous CPI data for December, had shown that both Headline and Core had moderated to the lowest level in over a year.
GBP/USD Analysis
The incoming inflation data will affect central bank's thinking around the monetary policy path and can determine the pair's trajectory. GBP/USD made a strong start to the week and tries to reclaim the EMA200. Above the EMA200 it can look for new highs (1.2449), but we are cautious about further advance towards and beyond 1.2667.
The recent repricing in market expectations around the Fed's terminal rate is supportive for the USDollar. As such, GBP/USD is in a precarious positions and vulnerable to the 1.1840-00 region, although sustained weakness below it has a high degree of difficulty.
Nikos Tzabouras
Senior Market Specialist
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
| Retrieved 14 Feb 2023 https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/latest | |
| Retrieved 14 Feb 2023 https://www.bankofengland.co.uk/monetary-policy-report/2023/february-2023 | |
| Retrieved 07 Jun 2023 https://www.youtube.com/watch |
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.