GBP/USD Price Forecast: Flattens around 20-day EMA ahead of UK employment data

GBP/USD wobbles around 1.3640 ahead of the UK labor market data on Tuesday.
UK ILO Unemployment Rate is expected to have remained steady at 5.1% in the three months ending December.
US inflation grew at a slower-than-expected pace in January.

Sagar Dua FXStreet

The GBP/USD pair trades flat around 1.3640 during the early European trading session on Monday. Cable trades calmly as investors await the release of the United Kingdom (UK) labor market data for the three months ending December, which is scheduled for Tuesday.

The UK labor market report is expected to show that the ILO Unemployment Rate remained steady at 5.1%. Average Earnings Including Bonuses, a key measure of wage growth, is estimated to have grown at a moderate pace of 4.6% Year-on-Year (YoY).

Signs of weak labor demand and slowing wage growth would prompt expectations for an interest rate cut by the Bank of England (BoE) in the near term. In the policy meeting earlier this month, the BoE decided to leave interest rates unchanged at 3.75%, with a 5-4 split, and reiterated that the monetary policy will remain on a “gradual downward path”.

Meanwhile, the US Dollar (USD) trades broadly stable as dovish Federal Reserve (Fed) expectations for the March and April policy meetings remain steady despite United States (US) inflation cooling down at a faster-than-expected pace in January.

GBP/USD technical analysis

GBP/USD trades flat at around 1.3648 as of writing. The price holds above the 20-day Exponential Moving Average (EMA) at 1.3619, keeping a positive near-term bias. The 20-day EMA has flattened in the past few trading days, suggesting that the trend is turning sideways.

The 14-day Relative Strength Index (RSI) at 55 (neutral) has eased from earlier overbought readings, signaling moderated but still supportive momentum.

Broadly, the pair demonstrates a sharp volatility contraction amid a Symmetrical Triangle formation. The upside remains capped near the downward-sloping border at 1.3675, while the downside remains supported near the advancing border at 1.3600.

(The technical analysis of this story was written with the help of an AI tool.)

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

Why is wage growth important?

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

How much do central banks care about employment?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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