Pound dips at start of week

The British pound has started the week with slight losses. Currently, GBP/USD is trading at 1.3660, down 0.17% on the day.

Sterling breaks 1.37 level

It was a positive week for the pound, which touched a high of 1.3746. This was the pound’s highest level since April 2018 and sets up a possible run to the 1.38 level. Sterling pummelled the dollar in the last two months of 2020, with gains of some 5.4%. The dollar has since stabilized, holding its own against the pound in January. Still, with GBP/USD close to multi-year highs, investor sentiment towards the British currency is high early in the new year.

Employment numbers loom

It is a quiet week for British fundamentals, with the only tier-1 releases being employment numbers early Tuesday (7:00 GMT). With analysts projecting mixed results, it’s tricky to predict how the pound will react. Wages have accelerated for four straight months and improved to 2.7% in October. The upswing is expected to continue, with a forecast of 3.0%. The unemployment picture has worsened, as Claimant Count Change jumped to 64.3 thousand in November, after a rare decline in the previous month (-29.8 thousand). This was much higher than the forecast of 10.5 thousand. The December forecast stands at 47.5 thousand, and if this estimate also misses, the pound could face some pressure. The unemployment rate has been creeping higher and is expected to climb to 5.1%. This would mark the first time that unemployment is above the symbolic 5 per cent level since 2016.

On Friday, the UK released December PMI reports for manufacturing and services. The indices, both of which weakened compared to November, reflected a tale of two sectors. The Manufacturing PMI came in at 52.9, indicating expansion. Services, however, continues to contract and slowed to 38.8 points. With the lockdowns across the UK taking a severe toll on services, the sector will remain in contraction mode until the Covid restrictions are eased.

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GBP/USD Technical

• GBP/USD faces resistance at 1.3733. Above, there is resistance at 1.3785
• There is support at 1.3633, followed by support at 1.3585
• The pair remains above the 20-day MA line at 1.3623. A daily close below this line is a bearish technical signal

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