- GBP/USD has been rising after the UK salaries rose more than expected.
- The focus will likely shift back to the critical Conservative contest.
- Tuesday's four-hour chart shows that the broken uptrend support is capping the recovery.
Britain's economy has shrunk in April but wage growth rose by 3.1%, more than 3% expected – and that has been enough to push GBP/USD above 1.2700. However, Sterling has several reasons to fall.
First, the employment report is less glorious than it seems at first sight. The claimant count change has shown an increase of 23.2K in May – worse than expected and opening the door to an increase in the jobless rate later on. Moreover, salaries have risen faster than forecast, but slower than in March, when annual pay rise hit 3.3%.
Secondly, the Conservative Party's leadership contest seems to be between those who want a hard Brexit – Dominic Raab leads this camp – and those who think they can squeeze concessions from the EU on the Irish backstop – a strategy that proved futile for outgoing PM Theresa May. This camp includes Michael Gove and Jeremy Hunt. The leading candidate remains Boris Johnson and he supports leaving on October 31st, with or without a deal.
The only candidate that has offered a second referendum – Sam Gyimah – has dropped out of the race. The pound has suffered when the odds of a no-deal Brexit have risen and it may happen again.
GBP/USD has also risen on the weakness of the USD, originating from the US-Mexican agreement and hopes for aggressive interest rate cuts by the Fed. However, trade tensions between the US and China have intensified after President Donald Trump has threatened new tariffs on China if he does not meet President Xi Jinping.
Moreover, two rate cuts are far from being guaranteed – it depends on the data. Today's producer price index will provide some insights on inflation, serving as a warm up to Wednesday's consumer price – which may rock markets.
All in all, cable enjoys several factors that may be temporary and could turn back down.
GBP/USD Technical Analysis
GBP/USD has been attempting to return to the uptrend channel it lost on Monday – so far without success. The former uptrend support line caps it. Momentum is marginally positive and cable is trading above the 50 and 100 Simple Moving Averages but below the 200 SMA.
Support awaits at 1.2685 which has been the initial sub-1.2700 point in May and also provided support today. It is followed by 1.2640 that is the starting point of the channel, then by 1.2605 which was a low point in late May, and finally by 1.2558 – the four-month low.
Resistance awaits at 1.2750 which capped GBP/USD three times in May and June and then by 1.2763 which capped it on Friday. Further up, 1.2815 and 1.2870 are eyed.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD stays below 1.0700 as focus shifts to Fed policy decisions
EUR/USD stays in its daily range below 1.0700 following the mixed macroeconomic data releases from the US. Private sector rose more than expected in April, while the ISM Manufacturing PMI fell below 50. Fed will announce monetary policy decisions next.
GBP/USD holds steady below 1.2500 ahead of Fed
GBP/USD is off the lows but stays flatlined below 1.2500 on Wednesday. The US Dollar stays resilient against its rivals despite mixed data releases and doesn't allow the pair to stage a rebound ahead of the Fed's policy decisions.
Gold rebounds above $2,300 after US data, eyes on Fed policy decision
Gold gained traction and recovered above $2,300 in the American session on Wednesday. The benchmark 10-year US Treasury bond yield turned negative on the day after US data, helping XAU/USD push higher ahead of Fed policy announcements.
A new stage of Bitcoin's decline
Bitcoin's closing price on Tuesday became the lowest since late February, confirming the downward trend and falling under March and April support and the psychologically important round level.
US Federal Reserve Decision Preview: Markets look for clues about interest rate cut timing
The Federal Reserve is widely anticipated to keep interest rates unchanged. Fed Chairman Powell’s remarks could provide important clues about the timing of the policy pivot.