GBP/USD Forecast: Pound Sterling turns fragile after soft UK wage inflation data

GBP/USD came under pressure and declined below 1.2550 on Tuesday.
Wage inflation in the UK softened at a faster pace than anticipated in October.
US economic docket will feature Consumer Price Index (CPI) data for November.

Eren Sengezer FXStreet

After rising toward 1.2600 in the early European session on Tuesday, GBP/USD reversed its direction and turned negative on the day below 1.2550. US inflation data for November could trigger the next big action ahead of the Federal Reserve (Fed) and the Bank of England (BoE) policy meetings.

Annual wage inflation in the UK, as measured by the change in Average Earnings Including Bonus, declined sharply to 7.2% in the three months to October from 8%. Average Earnings Excluding Bonus was up 7.3% in the same period, down from 7.8% previously.

Although the BoE is widely expected to stand pat on policy this week, soft wage inflation readings could be encouraging for policymakers, who have been voicing concerns over strong pay growth making it difficult for them to bring inflation back down to the 2% target.

Reflecting the negative impact of this data on Pound Sterling, EUR/GBP climbed into positive territory near 0.8600.

Later in the day, Consumer Price Index (CPI) data from the US will be watched closely by market participants. On a monthly basis, the Core CPI, which excludes volatile energy and food prices, is forecast to rise 0.3%. A weaker-than-expected core inflation print could make it difficult for the USD to find demand and help GBP/USD find support in the second half of the day. On the flip side, a reading at or above analysts' estimate could trigger another leg lower in the pair.

GBP/USD Technical Analysis

In case GBP/USD makes a 4-hour close below 1.2550, it could face next support at 1.2510-1.2500 (Fibonacci 38.2% retracement of the latest uptrend, psychological level) ahead of 1.2450-1.2440 (Fibonacci 50% retracement, 200-period SMA).

On the upside, 1.2600 (psychological level, 100-period SMA, 50-period SMA, Fibonacci 23.6% retracement) aligns as first resistance before 1.2625 (static level) and 1.2700 (psychological level, static level).

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Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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