GBP/USD extends decline as weak jobs data bolsters BoE rate cut bets

Pound Sterling hit by worsening labour market data as markets fully price a Bank of England cut by April.
UK unemployment rose to 5.2% in Q4, average earnings slowed to 4.2%, and claimant count surged 28.6K in January, strengthening the case for a Bank of England (BoE) March rate cut.
US Initial Jobless Claims and the Philadelphia Fed Manufacturing Survey on Thursday, along with multiple Fed speakers, will drive the US Dollar side; UK Retail Sales and PMI data on Friday complete a heavy week for Sterling.

Joshua Gibson FXStreet

The Pound Sterling (GBP) continued to backslide under sustained pressure on Wednesday, following through after the UK employment report on Tuesday showed a labour market deteriorating faster than expected. The Bank of England's (BoE) preferred measure of regular private sector wage growth dropped to a five-year low of 3.4%, removing a key obstacle that has kept the more hawkish Monetary Policy Committee (MPC) members from backing rate cuts. Markets now fully expect a 25-basis-point reduction by April, with a 76% probability of a March move. Wednesday's UK Consumer Price Index (CPI) did little to ease the burden on Bank of England (BoE) policymakers, especially after Producer Price Index (PPI) inflation and Retail Price Index figures all missed expectations.

Sharp sell-off drives Stochastic toward oversold as price tests the 50-day EMA

On the daily chart, GBP/USD shed 0.5% on Wednesday, extending the decline from four-year highs posted in January. Price is now toying with chart regions below the 50-day Exponential Moving Average (EMA). The 200-day EMA sits nearby at 1.3435, providing a deeper support floor. The Stochastic Oscillator is approaching the oversold zone, suggesting selling momentum is becoming stretched, and the pair may find some stabilization near current levels. The sell-off from recent highs high has now retraced roughly half the rally from the December lows, placing the pair at a key decision point. A sustained break below 1.3490 would target 1.3400 and the 200-day EMA. Recovery above the 50-day EMA at 1.3529 is needed to ease the bearish pressure.

GBP/USD daily chart

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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