GBP/USD Flat Despite Positive UK Employment Data

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GBP/USD FUNDAMENTAL BACKDROP

Cable edged higher against the greenback this morning flirting with the 1.23000 level following positive UK employment data. GBP/USD has since pared those immediate gains following the European open as the dollar index found some support to trade relatively flat around the 1.22600 level.

The employment data comes on the back of positive GDP figures released yesterday, which put GDP at pre-covid levels. The employment data release saw unemployment meeting estimates while payroll and the employment rate improved. Employees on the payroll increased by a 107k to a record of 29.9 million. Job vacancies recorded its fifth consecutive decline reflecting uncertainty as economic pressures weigh on recruitment. Wage growth came in better than expected with both total and regular pay increasing 6.1% YoY, the strongest pace on record outside the pandemic. However, when adjusted for inflation both total and regular pay actually declined 2.7%. The data adds to the Bank of England’s challenges and increases the possibility of a 75bps hike on Thursday (markets currently pricing in 57bps). Whether or not the BoE follow through remains to be seen given the state of the economy.

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Focus will now shift to the US as CPI data is due out later today. The forecast for core inflation YoY is 6.1% while overall inflation YoY is expected to come in at 7.3% compared to October’s print of 7.7%. A beat of the estimates could result in a rally for GBP/USD ahead of the Federal Reserve and BoE meetings on Wednesday and Thursday respectively.

From a technical perspective, GBP/USD has continued to print higher highs and higher lows since breaking the long-term descending trendline. The 50 and 100-day MA have just crossed (golden cross) further strengthening the case for a bullish continuation while the 200-day MA provides support around the 1.21000 level. A decline in US inflation could facilitate a move higher in which case the 61.8% fib level resting around the 1.25000 psychological level may come into play. Alternatively, a push lower could result in a retest of the 200-day MA or below that the 1.20000 level.

GBP/USD Daily Chart – December 13, 2022

Source: TradingView

IG CLIENT SENTIMENT DATA: BULLISH

IGCS shows retail traders are currently SHORT on GBP/USD, with 59% of traders currently holding short positions. At DailyFX we typically take a contrarian view to crowd sentiment, and the fact that traders are short suggests that prices could GBP/USD may continue rise.

Written by: Zain Vawda, Markets Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda