Pound Sterling gains on upbeat UK employment data
- The Pound Sterling outperforms most of its peers on upbeat UK employment data for three months ending February.
- Investors await the UK CPI data for March, which will be released on Wednesday.
- US President Trump will likely announce a temporary suspension of automobile tariffs.
The Pound Sterling (GBP) edges higher against its major peers, except antipodeans, on Tuesday after the release of the United Kingdom (UK) labor market data for three months ending February. The Office for National Statistics (ONS) reported that the economy added 206K fresh workers, significantly higher than the 144K recorded in three months ending January.
The agency reported that the ILO Unemployment Rate came in line with estimates and the prior release of 4.4%. The scenario of upbeat employment data is favorable for the British currency. However, financial market participants expect that employers could slow down their hiring process in the face of an increase in contributions to social security schemes starting in April.
In the Autumn budget, UK Chancellor of the Exchequer Rache Reeves raised employers’ contribution to National Insurance (NI) from 13.8% to 15%.
Meanwhile, Average Earnings Excluding Bonuses, a key measure of wage growth, grew at a slightly slower pace of 5.9% compared to estimates of 6%. In three months ending January, the wage growth measure rose by 5.8%, downwardly revised from 5.9%. Average Earnings Including Bonuses rose steadily by 5.6% but slower than the expectations of 5.7%.
Mixed Average Earnings data is unlikely to change market expectations for the Bank of England’s (BoE) monetary policy outlook significantly, which indicates that the central bank would cut interest rates in the May policy meeting.
For fresh cues on the interest rate outlook, investors will focus on the UK Consumer Price Index (CPI) data for March, which will be released on Wednesday. Economists expect the UK core CPI – which excludes volatile food and energy prices – to have grown at a steady pace of 3.5%.
Daily digest market movers: Pound Sterling refreshes six-month high against US Dollar
- The Pound Sterling posts a fresh six-month high near 1.3220 during European trading hours on Tuesday. The GBP/USD pair trades firmly as the US Dollar remains under pressure, with investors losing confidence in its structural attractiveness due to back-and-forth decisions on trade policies by United States (US) President Donald Trump. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades cautiously slightly above the three-year low of 99.00.
- The ever-shifting tariff headlines from US President Trump, from the 90-day pause on reciprocal tariffs on all of its trading partners, except China, to signals of temporary suspension on additional levies on imported vehicles, have forced traders to reassess the safe-haven appeal of the US Dollar.
- On Monday, Donald Trump signaled that he is exploring temporary exemptions for tariffs on imported vehicles and related parts as domestic Original Equipment Manufacturers (OEMs) need more time to set up manufacturing facilities at home. “I’m looking at something to help car companies with it,” Trump said and added, “They’re switching to parts that were made in Canada, Mexico and other places, and they need a little bit of time, because they’re going to make them here,” Bloomberg reported.
- Meanwhile, economic risks prompted by Trump’s policies have stemmed the need for interest rate cuts from the Federal Reserve (Fed). On Monday, Fed Governor Christopher Waller backed monetary policy easing in the scenario of an economic recession despite inflationary pressures remaining escalated. "I expect the risk of recession would outweigh the risk of escalating inflation, especially if the effects of tariffs in raising inflation are expected to be short-lived," Waller said.
Technical Analysis: Pound Sterling extends winning spree
The Pound Sterling extends its winning streak for the sixth trading day and jumps above 1.3200 against the US Dollar (USD) at the time of writing on Tuesday. The near-term outlook of the pair is upbeat as all short-to-long Exponential Moving Averages (EMAs) are sloping higher below the current price.
The 14-day Relative Strength Index (RSI) demonstrates a V-shape recovery from 40.00 to 65.00, suggesting a strong bullish momentum.
Looking down, the 61.8% Fibonacci retracement plotted from late September high to mid-January low, near 1.2927, will act as a key support zone for the pair. On the upside, the three-year high of 1.3430 will act as a key resistance zone.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.