The British pound has seen recent setbacks against the US dollar, largely influenced by slower-than-anticipated growth in UK wages and only a marginal improvement in the employment scenario. Central banks often scrutinize UK wage trends keenly, striving to prevent wage-price spirals. Despite being at elevated levels, UK wage increments in August were slower than the market anticipated, feeding into the speculation that the Bank of England (BoE) might have implemented its final rate increase.
There was a slight drop in the unemployment rate, moving from 4.3% to 4.2%. However, the overarching trend indicates a gradual relaxation in the labor market, which often signifies that the restrictive monetary strategies are positively impacting the real economy and moderating price escalations.
The pound’s momentum towards bullish growth met resistance and began retracting before reaching 1.2345. Presently, the GBP/USD pair seems inclined to challenge the support levels near 1.2039, with the crucial threshold of 1.2000 coming into sight.
With pivotal US economic data on the horizon, market watchers may foresee a further descent in the GBP/USD ratio, given the pound’s current lack of upward driving forces. Consistently, recent US metrics, such as NFP and retail sales data, have provided positive shocks, amplifying the dollar’s appeal. The resistance level for GBP/USD seems to be hovering around 1.2200.
Trader sentiments show a 3.40% increase in net-long positions compared to yesterday and a 1.42% rise from the past week. Net-short positions have increased by 1.80% since yesterday and 0.14% from the previous week.
Given the prevailing trader sentiment and the recent shifts, there’s a reinforced bearish outlook for GBP/USD from a contrarian perspective.
Key Data Releases to Watch
By 13:30, market enthusiasts are expected to bypass the durable goods statistics and zoom in on the initial Q3 GDP data. Recent adjustments have revised the anticipated growth from 4.1% to 4.3%. Despite the heightened expectations, a favorable output will likely buttress the dollar, which has already been on a notable positive streak in recent sessions.
Subsequently, Friday will bring the PCE inflation statistics into focus. September’s US CPI data showcased resilient price dynamics, bolstering the dollar as market participants speculated another potential hike in the Fed funds rate. Given recent trends, US metrics, including NFP and retail data, have consistently outperformed expectations.