GBP/USD in a holding pattern ahead of UK labor data, yield spread topped out?

  • GBP/USD stuck in the narrow range of 1.31-1.3180.
  • UK labor data likely to show wage growth slowed.
  • 10-year US-UK yield spread may have topped out.

Cable's drop below 1.31 levels yesterday was short-lived, courtesy of the broad-based USD weakness, still, the area around 1.3180 proved a tough nut to crack. The pair fell back to 1.3140 in Asia as investors await the all-important UK labor data.

UK Labor Market Preview: Unemployment is seen steady as wages decelerate

Mario Blascak, European Head at FXStreet, writes, "the market focus will be on wage growth that is seen decelerating in September to 2.1% y/y including bonuses, while wages excluding benefits are seen rising by 2.2% y/y, at the unchanged rate from August."

A weaker-than-expected wage growth numbers could aggravate the problem of negative real wage growth and put more pressure on the Bank of England (BOE) to hike rates. However, it is easier said than done as the BOE is also battling a slowdown in consumption and brexit uncertainty. Thus, traders are likely to offer GBP if the wage growth misses estimates.

Has yield spread topped out?

The above chart shows the US-UK 10-year yield spread has left another lower high at 109.9 basis points (Nov. 8 high) and now looks set to drop further in the GBP-negative manner.

GBP/USD Technical Outlook

FXStreet Chief Analyst Valeria Bednarik writes-

"From a technical point of view, the 4 hours chart shows that the price has broken above the 50% retracement of the latest daily decline and  hovers Monday's high, while the RSI  indicator accelerated north, now around 58, all of which favors a new leg higher, despite the Momentum holds flat around its 100 level." 

 Support levels: 1.3130 1.3095 1.3060

Resistance levels: 1.3185 1.3220 1.3260 

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