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  • GBP/USD has slipped under 1.3800 on Tuesday and to fresh one-month lows, despite decent UK jobs data.
  • The drop is primarily as a result of a stronger US dollar, which is gaining against most of its G10 peers.

GBP/USD broke below key support in the form of its 50-day moving average and recent lows ahead of the 1.3800 level on Tuesday morning and has since been struggling to reclaim the big figure. As of right now, the pair is consolidating in the 1.3790s, which in fairness is a solid 40 pip recovery from session lows of just above 1.3750. Tuesday’s drop means GBP/USD hit its lowest levels in over a month and the pair currently trades lower by about 0.5% or around 70 pips on the session.

Driving the day

UK news and updates have taken a backseat to a broader pick up in the US dollar than has seen the Dollar Index (DXY) rally back to the north of the 92.00 level and to fresh two-week highs. Markets are in a somewhat defensive mood on Tuesday, with global equities and risk-sensitive commodities, for the most part, lower – Germany announced another extension of lockdown measures including tough restrictions over the Easter holiday period (as expected) and joins the likes of France, Italy and other European countries where Covid-19 cases are rising and lockdown restrictions are tightening. Meanwhile, US/China or more broadly, West/China relations are in focus and not in a good way as China hits back at US, EU, UK and Canadian sanctions with sanctions of their own. All of the above is feeding into a more defensive market vibe which is helping USD and hurting sterling.

Elsewhere, robust UK employment data for the months of January and March demonstrate that the UK government’s furlough scheme continues to do a good job in protecting jobs; in the three months to January, employment fell 147K, less than the expected drop of 167K and the unemployment rate in January dropped to 5.0% versus forecasts for a small rise to 5.2% from 5.1%.

Meanwhile, February’s flash estimate of total employment showed employment levels having dropped 2.4% since this time last year, a drop of 693K jobs. Note that the presence of the government’s furlough scheme continues to distort the labour market data as many on not working but still on their employees’ payrolls via furlough do not show up as unemployed. As furlough is unwound over the summer, unemployment is expected to rise, the question being how much (current BoE forecasts assume unemployment rising to 7.5% this year, but this will likely be revised lower at the next BoE meeting).

Looking ahead, sterling traders have more key data points to keep note of this week including February Consumer Price Inflation and March preliminary Markit PMIs on Wednesday, followed by February Retail Sales data on Friday. Note also that BoE Governor Andrew Bailey will be speaking on Thursday at 09:30GMT.