- The GBP/USD outlook is slightly weak after mixed employment data.
- Market participants await BoE to find directional bias.
- US tariffs and the global economic outlook pose a risk of recession in the UK.
The GBP/USD outlook is dented as the London session opened on Thursday. The pair slipped from the 1.3000 level following the release of UK employment data. The recent ONS data shows the unemployment rate steady at 4.4% in three months, meeting expectations. However, the labor market presented a mixed picture, adding uncertainty and leading to the Bank of England’s monetary policy decision.
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The jobless claims surged by 44.2k in February, exceeding expectations of 7.9k by a big margin. Contrarily, employment change for January came at 144k, up from 107k in December. The wage growth data showed a slight change in earnings. Average earnings rose to 5.9% y/y in three months, matching expectations.
After the employment data release, the GBP/USD slipped sharply towards the 1.2960 area. The pair briefly broke the 1.3000 level for the third time but couldn’t sustain the momentum as investors await clarity from BoE.
Cable’s surge to the 19-week top could tempt dovish members of BoE MPC to urge for a rate cut in the May meet. It is worth asking, as the US tariffs imposed on April 2 could spark a risk of recession in the UK. The recent upside in the GBP/USD could help counteract the upside pressure on the UK CPI that hit a 10-month top of 3% in January, a month when the pair had tested 14-month lows of 1.2160.
The BoE is widely expected to maintain the policy rates in today’s meeting. However, investors will assess Governor Baoley’s press conference for future rate projections. With Swati Dhingra and Catherine Mann voting for a cut and Huw Pill and Megan Greene voting for hold, the other five voters will decide the outcome.
Inflation concerns remain a key for the central bank. Contracting GDP is another challenge. Swap markets anticipate a 56 bps rate cut by year-end. Governor Bailey had recently highlighted concerns about a global growth slowdown or accelerated disinflation process.
The cautious tone of the BoE may lend support to the pound. However, any dovish surprise could exacerbate downside momentum.
GBP/USD Technical Outlook: Downside Limited in a Broad Range
The GBP/USD price maintains a bullish bias supported by the 30-period SMA. However, the RSI is slowly retreating towards the neutral territory, posing a risk of downside correction. The prices are consolidating within a broad range of 100 pips, with immediate support emerging at 1.2950 ahead of the lower end of the range at 1.2907 and then 1.2860.
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Breaking 1.2860 could alter the bullish trend, and deeper corrections cannot be ruled out. However, the markets seem to lack a catalyst for a meaningful move on either side.
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Saqib Iqbal
