Pound eyes UK employment data

The British pound is coming off a quiet week and the lack of activity has continued on Monday. Early in the North American session, GBP/USD is trading at 1.3040, down 0.14% on the day.

It’s a busy week in the UK, with the release of employment, inflation and retail sales. These key reports will be key factors in determining whether the BoE cuts or maintains rates at the November 9 meeting. The central bank has lowered rates only once this year but is expected to cut by 25 basis points at each of the November and December meetings, followed by cuts of 125 basis points in 2025.

The UK releases the September employment report on Tuesday. Job growth is expected to ease slightly to 250 thousand, compared to 265 thousand in August. The unemployment rate is expected to remain unchanged 4.1%. Wage growth, which has been high and putting upward pressure on inflation, is expected to ease, with average earnings excluding bonuses projected to drop from 5.1% to 4.9%.

The BoE delivered its first rate cut in over four years in August but stayed on the sidelines in September. Governor Bailey said at the September meeting that the BoE had to be “careful not to cut too fast or by too much”. The BoE wants to trim rates gradually but there is growing pressure to get on with it – with inflation contained and running close to the BoE’s 2% target, interest rates are far too high at 5%. The new government has made economic growth a priority and lower interest rates will help kick-start the economy.

The Federal Reserve has also lowered rates only once in the new cycle of rate-cutting, but its jumbo 50-basis point cut showed that markets that the Fed means business and can be aggressive. The Fed is expected to cut another 50 or 75 basis points before year’s end. With only two more rate meetings this year, the most likely scenario is rate cuts of 25 bps in November and December. The Fed could, however, deliver one more 50 bps cut if employment or inflation numbers are lower than expected.

GBP/USD Technical

• GBP/USD is testing resistance at 1.3058. Above, there is resistance at 1.3095
• 1.3023 and 1.2986 are the next support levels

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