Key Points:
- GBP/USD is trading at 1.2740 with mild losses amid a cautious market mood.
- Strong US employment report and upcoming CPI inflation data are crucial; expectations for May’s CPI are 3.4% YoY.
- UK employment figures show a fourth consecutive contraction, increasing unemployment and jobless claims.
As of the early Asian session on Wednesday, the GBP/USD pair is trading at 1.2740. This pair, which represents the exchange rate between the British Pound (GBP) and the US Dollar (USD), has experienced mild losses. The prevailing sentiment indicates a cautious market mood influenced by extended gains in the USD.
Market Sentiment and USD Gains Affect GBP/USD
The recent performance of the USD has seen extended gains, which have contributed to the mild losses in the GBP/USD pair. Two primary factors influence this sentiment: a cautious market mood and upcoming significant economic data releases. Investors closely watch the US CPI inflation data and the Federal Open Market Committee (FOMC) meeting. Furthermore, these events are expected to play critical roles in determining the future direction of the USD.
US CPI Inflation Data Expected at 3.4% YoY
Last week, a strong employment report from the US significantly impacted market expectations. This robust data reduced the likelihood of a rate cut by the Federal Reserve in September. Looking ahead, the upcoming CPI inflation data will be crucial. Analysts expect the headline CPI for May to be 3.4% year-over-year (YoY) and the core CPI to be 3.5% YoY. A softer-than-expected report may result in selling pressure on the USD, potentially reversing some of the recent gains.
UK Jobless Claims Rise to 50.4K as Employment Falls
In the UK, the labour market trends are a cause for concern. The labour market has contracted for the fourth consecutive period, with employment change figures showing a decrease of 140,000 for the three months to April, compared to a drop of 177,000 in the previous period. The ILO unemployment rate increased to 4.4% from 4.3%, slightly above market expectations. Additionally, jobless benefits claims rose significantly in May to 50.4K from 8.4K in April, indicating a weakening job market.
GBP/USD Pressure from US Gains and UK Job Data
The weaker labour market reports have edged the GBP lower against the USD. The combination of domestic economic challenges and the strengthening USD has put downward pressure on the GBP/USD pair. Investors and traders will continue to monitor both UK and US economic data closely, as these will provide further insights into the future movements of the GBP/USD exchange rate.
