GBP/USD Outlook: Labor Data Boosts Resilience Amid Rate Cut Speculations

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FOREX Newsletter - October 13, 2024

The UK labor data released in September showed robust figures, with regular pay, excluding bonuses, rising by 5.1% year-on-year to GBP 647 per week for the three months leading up to July 2024. This marks the smallest increase since June 2022 but is still above market expectations.
Employment increased significantly, with a rise of 265,000 jobs, far exceeding the estimated 115,000. This strong employment data, coupled with a drop in unemployment to 4.1%, poses challenges for the Bank of England (BoE) in balancing strong employment with moderating wage growth and potential rate cuts.

Technically, GBP/USD has shown resilience, particularly after the UK labor data release. The pair rallied but later surrendered some gains. Key resistance levels include 1.3100 and 1.3181, while support levels are at 1.3040, 1.3000, and 1.2942.
From a fundamental perspective, the pair's trajectory is influenced by US economic data, such as CPI and PPI, as well as comments from BoE policymakers. The US CPI and core CPI figures, which showed a slight softening in inflation, have limited the US Dollar's strength, allowing GBP/USD to maintain some gains.

Upcoming economic data, including US CPI and PPI, will be crucial for GBP/USD. Comments from BoE Deputy Governor Sarah Breeden are also anticipated to provide insights into the BoE's stance on future rate cuts.
The UK's GDP expanded by 0.2% on a monthly basis in August, matching analysts' estimates, and industrial production grew by 0.5%. These figures have helped the Pound Sterling stay resilient against its peers.

The BoE is cautious about cutting interest rates despite economic slowdown concerns. Governor Andrew Bailey has indicated that further rate cuts will not be made hastily until inflation is fully controlled. Market expectations suggest a possible rate cut as early as June 2024, with four 25 bps cuts anticipated by the end of the year.
The prospect of a recession in the run-up to the 2024 national election in the UK adds to the uncertainty and potential volatility for GBP/USD.

The GBP/USD pair is expected to remain volatile due to key economic releases and political events. The pair's movement will be closely watched as it navigates between the 1.3100 resistance and the 1.3000 support levels. Increased odds of a recession and general elections on both sides of the Atlantic are forecasted to drive significant price action in 2024.

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