Pound Sterling gains sharply after mixed UK employment data
- The Pound Sterling attracts significant bids against its currency peers after mixed UK employment data.
- UK employers hired 82K fresh workers in three months ending November, while the jobless rate remains steady.
- The US Dollar weakens further amid the US-EU dispute over Greenland’s future.
The Pound Sterling (GBP) rises sharply against its major peers on Tuesday, climbs to near 1.3480 against the US Dollar (USD), after the release of the United Kingdom (UK) employment data for the three months ending in November. The labor market report showed that the Unemployment Rate remained steady at 5.1%, while it was expected to drop to 5%.
The report also showed that the economy added 82K fresh workers after a reduction in the laborforce by 17K in the three months ending in October.
Meanwhile, Average Earnings, a key measure of wage growth, rose at a moderate pace in the quarter ending in November. Average Earnings Excluding Bonuses grew at an annualized pace of 4.5%, as expected, slower than the prior reading of 4.6%. The wage growth measure, including bonuses, rose 4.7%, faster than expectations of 4.6%, but slower than the former release of 4.8%, upwardly revised from 4.7%.
Signs of cooling wage growth and a steady jobless rate would prompt expectations of interest rate cuts by the Bank of England (BoE) in the near term.
For more cues on the UK’s interest rate outlook, investors will focus on the Consumer Price Index (CPI) data for December, which will be released on Wednesday. The UK CPI report is expected to show that price pressures remained broadly steady.
Last week, BoE Monetary Policy Committee (MPC) member Alan Taylor stated that inflation could return to the central bank’s 2% target in mid-2026 more quickly than having to wait until 2027, and projected that interest rates could “normalise to the neutral sooner rather than later”. In the December meeting, the BoE guided that the monetary policy will remain on a “gradual downward path”.
Daily Digest Market Movers: Pound Sterling outperforms US Dollar amid US-EU dispute
- The Pound Sterling jumps to near 1.3465 against the US Dollar during the European trading session on Tuesday. The GBP/USD pair attracts significant bids after the UK employment data release. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is 0.13% down to near 98.90.
- The US Dollar extends its losses on Tuesday as “Sell America” trade intensifies due to ongoing disputes between the United States (US) and the European Union (EU) over Greenland.
- Over the weekend, US President Donald Trump announced 10% tariffs on several EU members and the United Kingdom (UK), leaving scope for further increase, in retaliation for their opposition to Washington’s plans to purchase Greenland.
- In response, several EU members and UK Prime Minister (PM) Keir Starmer have criticized Trump for invoking a tariff war to fulfill his intentions of acquiring Greenland.
- Market experts have warned that a prolonged US-EU dispute could result in loss of confidence in Trump’s leadership, a strained alliance with the world’s biggest economy, and the appeal of US assets for a longer period.
- On the domestic front, investors await Thursday's US Personal Consumption Expenditure Price Index (PCE) data for October and November, which is the Federal Reserve’s (Fed) preferred inflation gauge, to get fresh cues on the interest rate outlook.
- Currently, traders are confident that the Fed will leave interest rates unchanged in the monetary policy meeting later this month, according to the CME FedWatch tool.
Technical Analysis: GBP/USD returns above 20-day EMA
GBP/USD rises to near 1.3480 as of writing. Price holds just above the 20-day Exponential Moving Average (EMA) at 1.3433, keeping the short-term bias supported. The 20-day EMA has flattened, indicating consolidation after the prior ascent.
The 14-day Relative Strength Index (RSI) at 57 (neutral) reflects balanced momentum with a positive tilt.
Measured from the 1.3789 high to the 1.3009 low, the 61.8% Fibonacci retracement at 1.3491 acts as resistance, but a daily close above the same could open a run toward the 78.6% retracement at 1.3622. On pullbacks, a close back below the 20-day EMA at 1.3433 would soften the tone and expose a deeper correction.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling FAQs
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).
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.
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.
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.
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