The Pound Sterling (GBP) has been showing signs of fluctuation, hovering around the 1.2150 mark, as all eyes turn to the impending UK employment data release. This trepidation reflects concerns among investors regarding potential negative changes in employment levels in the quarter leading up to August. This apprehension is driven by the possibility that businesses might be reducing their workforce, reflecting a bleak demand forecast.
Notably, the Bank of England (BoE) has maintained high interest rates, and persistent inflationary pressures have been affecting household incomes. This has subsequently suppressed demand. The ongoing geopolitical tensions between Israel and Palestine are further muddying the waters, with the potential to spike energy prices and consequently contribute to inflation. With these factors in consideration, the financial community largely anticipates the BoE to maintain the current interest rates in its November review.
Pound Sterling in Focus: Employment Data Takes Center Stage
While the Pound Sterling has been relatively stable in recent days, this equilibrium may be short-lived as the Bank of England's monetary policy meeting approaches. Economic data released in October suggests a high likelihood that the BoE will refrain from any interest rate hikes, leaving them at 5.25%. Other indicators like the UK Manufacturing PMI, which lingered below the 50.0 mark, and a contraction in Retail Sales, both point towards a sluggish economic activity. Such trends could potentially temper inflationary expectations. Additionally, September saw consumer spending remaining tepid, impacted by the double whammy of escalating inflation and soaring borrowing rates.
While September's inflation exceeded initial projections, BoE Governor Andrew Bailey, in a conversation with the Belfast Telegraph, remained optimistic about a notable decrease in the coming month. According to Bailey, a considerable slowdown in wage growth might be the catalyst that nudges inflation towards the 2% mark.
As traders monitor the GBP/USD pair’s movements around the 1.2150 zone, it is widely expected that the imminent employment data release will determine its next significant directional shift. Notably, the UK Office for National Statistics (ONS) recently delayed part of the employment data, citing unavailability of inputs from certain private sectors. Preliminary estimates suggest that nearly 198K jobs were lost in the three months to August, which followed a reduction of 207K in the preceding quarter. However, the Unemployment Rate is forecasted to hold steady at 4.3%, and there's an anticipated rise in jobless claims for September.
This data coincides with sentiments from UK firms who attribute weakened consumer demand to high borrowing costs and continuous inflationary pressures. In a recent development, Moody's modified the UK's outlook from "negative" to "stable", attributing this change to improved policy predictability post the tumultuous period last year, which was marred by the "mini-budget" crisis. Geopolitical tensions have further dampened market sentiments due to the Gaza hospital blast that resulted in a tragic loss of over a thousand lives.
On the other hand, the US Dollar's trajectory remains ambiguous, slightly above the 106.00 level, as the focus shifts to the upcoming Q3 GDP data. Recent remarks from Federal Reserve (Fed) Chair Jerome Powell and peers have kept the US Dollar's ascent in check. Cleveland Fed Bank President Loretta Mester emphasized the need for adaptability in policy decisions given the current economic climate.
Technical Analysis: Pound Sterling’s Positioning
The Pound Sterling continues to oscillate within the bounds set during Friday's trading, with the impending UK employment data release anticipated to influence the BoE's monetary strategy for November. The 20-day Exponential Moving Average (EMA) stands as a hurdle for the Pound Sterling, approximately at the 1.2200 mark. The larger GBP/USD scenario is on shaky grounds, evidenced by the "death cross" signal given by the intersection of the 50-day and 200-day EMAs. As economic indicators unveil themselves, they will play a pivotal role in determining the GBP's trajectory in the coming weeks.
