The British pound has been a volatile currency over the last few days, but the GBP/USD has continued to show some strength against the US dollar. While the trade-weighted dollar (DXY) has sunk by almost 9% from its peak in September, the pound has held up better. A few good UK data releases have helped to support the pound, but many economists think the country is headed into a prolonged recession. Until more information about the economic outlook is available, Sterling is not in a position to gain much traction against the greenback.
GBP/USD has been fluctuating near an ascending trend line since early December. The currency has been able to find some level of support from the 200-day MA, which is around the 1.21000 mark. However, the currency remains vulnerable to a further fall. It could face a test at a swing low of around 1.1840, or retest its 200-day MA, which is currently just below 1.2297.
After taking a dip in the first half of the session, the pound rebounded with the release of UK employment and wage growth numbers. Employment growth slowed from the previous month’s tepid numbers, but the unemployment rate dropped to an all time low of 4.7%. Moreover, wage growth exceeded estimates. Wages increased by a whopping 6.1% on a year-on-year basis.
On the other hand, inflation rose above expectations, and real wages fell by a small but significant amount. In fact, the annual inflation rate rose to 11.1%, well above the Federal Reserve’s target of 4%. This is partially due to a sharp increase in energy prices. If the price of energy falls, a material boost to the pound could be on the way.
However, the most impressive number of all was the number of unemployed people, which decreased by more than 5 thousand from January. This is more than the number of job openings, which also slid in the same period. But even if the UK is able to beat the tally, the number of jobs created will likely be lower than anticipated.
Having said that, the number of people unemployed is not a great indicator of how the UK economy is doing. The unemployment rate has remained below the 3% threshold for several months, which is a positive sign. However, the number of people unemployed is still relatively high, especially considering that the average weekly earnings sank by over 2 percent on a year-on-year basis. Nevertheless, this is a notable feat for a nation in the midst of a recession.
Another key event to look out for this week is the release of the US labour market statistics. A key part of the data is the number of initial jobless claims. During the US session, this number is expected to come in below expectations, and a decline in this number could help to lift the GBP/USD.
As we head into the holiday season, the pound will be bolstered by the release of a handful of important economic indicators. For instance, the UK’s retail sales numbers should prove useful for the Pound. Also, tomorrow’s UK mortgage approvals figures should provide a glimmer of hope.