Sterling hits 1.20 after UK job data

The British pound has extended its gains on Tuesday. GBP/USD is currently trading at 1.2010, up 0.50%.

The US dollar continues to retreat across the board, as the greenback remains in a downward correction. The dollar index continues to fall and is at 106.58, down 0.73%. The next support level is at 1.0585, followed by 1.0500.

The downward pressure on the dollar is a result of an improvement in risk appetite, ahead of the FOMC meeting on July 27^th. We have seen plenty of fluctuation in the pricing of a 75bp vs. 100bp move by the Fed. Currently, the markets are betting on a 75bp increase, even though last week’s US retail sales bolsters the case that the economy is robust enough to withstand a 100bp move. The FOMC is currently in a blackout period and last week’s comments from FOMC members Bostic and Bullard in favor of a 75bp move appear to have gone a long way to convince the markets that the Fed won’t go with a massive 100bp hike. This has reduced the attractiveness of the US dollar and the pound is in positive territory after two straight winning days.

UK jobs report positive, inflation next

The UK economy added 296 thousand jobs over the past three months, blowing the consensus estimate of 170 thousand out of the water. The unemployment rate remained at 3.8%, beating the forecast of 3.9%, and unemployment rolls fell by 20.0 thousand after a decline of 34.7 thousand. This points to a solid labour market which will raise pressure on the BoE to consider raising rates more drastically, after the paltry 0.25% increase in June. Wednesday’s inflation report is expected to indicate that inflation accelerated to 9.3%, up from 9.1%, which will put further pressure on the BoE to be more aggressive in the coming months with regard to rate policy.

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GBP/USD Technical

• GBP/USD tested resistance at 1.2018 earlier in the European session. Above, there is resistance at 1.2167
•  There is support at 1.1887 and 1.1740

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