GBP/USD edges lower, UK employment next

The British pound has started the trading week in negative territory. In the North American session, GBP/USD is trading at 1.2807, down 0.39%. The pound has posted six straight winning days and climbed 1.56% last week against the US dollar.

UK employment expected to decelerate

The UK releases the employment report on Tuesday. The labor market has remained resilient even with the steep rise in interest rates, and the new measure for employment data has indicated that the labour market is stronger than previously thought. For instance, the unemployment rate in the fourth quarter of 2023 stood at 3.8%, compared to 4.2% under the old measure. The unemployment rate is expected to remain steady at 3.8% in the first quarter.

We could see a large drop in job growth, with an estimate of 10,000 for Q4, compared to 72,000 in Q3. Wage growth has been dropping steadily and is expected to tick lower to 5.7% y/y including bonuses, down from 5.8% in the third quarter.

The Bank of England will be keeping a close eye on the employment release. The BoE meets on March 21 and Governor Bailey has eased up on his pushback against rate cut expectations. If Tuesday’s employment numbers are stronger than expected, it will likely raise the odds of a rate cut later this year.
In the US, Friday’s employment release was a mix. Job growth remained strong as nonfarm payrolls rose 275,000, easily beating the market estimate of 200,000 and the downwardly revised 229,000 in January.

However, the unemployment rate surprised by climbing to 3.9% after holding at 3.7% for three consecutive months, which was also the market estimate. This was the highest unemployment rate in two years and points to softer labor market conditions. The rise in the unemployment rate has raised the odds of a rate cut in June by the Federal Reserve. Currently, the likelihood of a cut is 71%, compared to 64% just one week ago, according to the CME’s FedWatch tool.

GBP/USD Technical

• There is resistance at 1.2902 and 1.2945
• GBP/USD pushed below support at 1.2852 and is testing support at 1.2809

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