GBP/USD – Breaks key support amid strong US economic figures

• Traders pare rate cut expectations after strong US data
• UK households remain cautious with spending in December
• GBPUSD breaks quadruple top neckline

The US economy is going from strength to strength, complicating the Federal Reserve’s intentions to cut interest rates multiple times this year.

The jobs report on Friday was red hot, with the wages component particularly problematic from a central bank perspective as it looks for further evidence that inflation is returning sustainably to target.

The services PMI on Monday further reinforced the image of an economy that’s getting stronger and stronger, not buckling under the pressure of high interest rates.

While the central bank can achieve its inflation target with a strong economy, it will only encourage policymakers to cut rates with extreme caution through fear of overheating the economy and causing another inflation headache.

UK data on the other hand continues to paint the picture of an economy that’s flatlining, albeit with a tight labour market and strong inflationary pressures. The BRC retail sales monitor highlighted the softness of spending during the holiday season, a sign of how careful households are still being with their finances.

GBPUSD breaks important support

Cable had been consolidating over the last month and a half but the recent US data appears to have brought that to an end.

GBPUSD Daily

Source – OANDA

A move below 1.26 has broken the neckline of a quadruple top and now it’s testing that level from below. A failure to break back above could be viewed as confirmation of the initial breakout, reinforcing the bearish move.

GBPUSD 4-Hour

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