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Sterling continues to advance ahead of UK employment data and US CPI.

  • The British Pound remains above 1.2500 thanks to the good British GDP data for the first quarter.
  • The British economy grew by 0.6%, thus emerging from the recession expected for the second half of 2023.
  • Investors are awaiting employment data in the United Kingdom and inflation in the United States.

The British Pound (GBP) exhibits strength above the psychological support of 1.2500 against the US Dollar (USD) in the latest European session on Monday. The GBP/USD pair holds firm as the US dollar struggles to recover from higher-than-expected initial jobless claims for the week ending May 3, which raised concerns about the health of the US labor market.

Financial markets' confidence that the US Federal Reserve (Fed) will begin lowering interest rates from its September meeting has increased as conditions in the US labor market have cooled. For now, investors are focusing their attention on the US Consumer Price Index (CPI) data for April, which will be published on Wednesday.

The annual headline CPI is expected to have softened to 3.4% from 3.5% in March. In the same period, core inflation, which eliminates the volatility of food and energy prices, would slow to 3.6% from 3.8% previously. Economists expect headline and core CPI to have grown at a slower pace of 0.3%, down from 0.4% previously.

Daily Market Moves Summary: Pound Takes Advantage of Multiple Tailwinds

  • The British Pound maintains its strength inspired by strong UK first quarter Gross Domestic Product (GDP) data released on Friday. The UK Office for National Statistics (ONS) reported that the economy expanded at a stronger pace of 0.6%, beating estimates of 0.4%. In this way, the technical recession registered in the second half of 2023 came to an end.
  • Following the GDP data, British Chancellor Jeremy Hunt said: “There is no doubt that it has been a difficult few years, but today's growth figures are proof that the economy is returning to full health for the first time since the pandemic,” Reuters reported.
  • Following strong growth data from the UK, the strength of the British economy will now be tested by labor market data, due to be released on Tuesday. Economists expect the ILO unemployment rate for the three months ending in March to rise to 4.3% from the previous reading of 4.2%. Aside from the unemployment rate, investors will be keeping a close eye on data on average earnings, which has been fueling services inflation, which is almost double what should be consistent to bring inflation down to the 2% target. .
  • Average annual earnings, including premiums, are estimated to have slowed to 5.3% in the three months ending in March, from the previous reading of 5.6%. A sharp decline in wage growth momentum would raise expectations that the BoE will begin cutting interest rates in June.
  • Last week, the BoE kept interest rates at 5.25% for the sixth consecutive time. Overall, the BoE's communication indicated that it is moving rapidly towards policy normalization. BoE Deputy Governor Dave Ramsden joined Policymaker Swati Dhingra and voted in favor of a 25 basis point (bp) rate cut to 5.0%. At the news conference, BoE Governor Andrew Bailey said the central bank could deliver more rate cuts than investors had anticipated.

Technical Analysis: Sterling remains well supported above 1.2500

The British Pound advances to 1.2540 on Monday on multiple tailwinds. The GBP/USD pair rebounded strongly from the 50% Fibonacci retracement (traced from the April 22 low at 1.2299 to the May 3 high at 1.2634) near 1.2470. The Pound remains stuck to the 20-day EMA, which is trading around 1.2520, suggesting a sideways trend.

The pair continues below the neck line of the Head and Shoulder (H&S) chart pattern formed on a daily time frame. On April 12, the Pound fell sharply after breaking below the neck line of the head-and-shoulder pattern drawn from the December 8 low around 1.2500.

The 14-period RSI is oscillating in the 40.00-60.00 range, suggesting indecision among market participants.

Economic indicators

Consumer Price Index without food or energy (annual)

Inflationary or deflationary trends are measured by periodically adding the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is collected monthly and published by the U.S. Bureau of Labor Statistics. The annual reading compares the prices of goods in the reference month with the same month of the previous year. The CPI excluding food and energy excludes the most volatile components of food and energy to provide a more accurate measure of price pressure. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is considered bearish.

More information.

Next post: Wed May 15, 2024 12:30

Periodicity: Monthly

Consensus: 3.6%

Former: 3.8

Fountain: US Bureau of Labor Statistics

The US Federal Reserve has the dual mandate of maintaining price stability and maximum employment. According to this mandate, inflation should be around 2% annually and has become the weakest pillar of the central bank's directive since the world suffered a pandemic, which continues to this day. Price pressures continue to mount amid supply chain issues and bottlenecks, with the Consumer Price Index (CPI) at multi-decade highs. The Fed has already taken steps to contain inflation and is expected to maintain an aggressive stance for the foreseeable future.

Source: Fx Street

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