GBP/USD has rebounded on Tuesday after sharp employment numbers. The pound came within a whisker of the symbolic 1.30 line on Monday, dropping to a low of 1.3001.
UK employment data outperforms
The markets were forecasting good news from the UK employment report, and the data exceeded markets expectations. The number of unemployed persons fell by 48.1 thousand, the unemployment rate dropped from 4.1% to 3.9% and wage growth rose to 4.8%, up from 4.6%. These strong numbers come on the heels of strong releases on Friday. GDP for January jumped 0.8% MoM and a sizzling 10.0% YoY. Manufacturing Production for January also rose 0.8% MoM and 3.6% YoY.
The spate of recent data shows that the UK economy continues to recover from Covid and is headed in the right direction. With no UK events on Wednesday, investors will shift their attention to the BoE policy meeting on Thursday. Will the central bank raise rates? The markets have priced in a 25-basis point hike, which would mark an unprecedented third straight hike in as many meetings. The pound remains vulnerable and is coming off a third successive weekly loss, and if the BoE stays on the sidelines, the pound could take a tumble.
The US dollar has held steady against the pound today, as rising US yields have offset reduced haven flows, on hopes that Russia might agree to a ceasefire in Ukraine. The US 10-year yield has broken above the 2.0% level and is currently at 2.11%. The grim situation in Ukraine could deteriorate further, or we could see progress towards a ceasefire, which makes for potentially volatile markets in the face of tremendous uncertainty.
Investors are keeping an eye on the FOMC meeting on Wednesday, with the Fed widely expected to start its lift-off of rate hikes. A quarter-point rise is a virtual certainty, and a hawkish rate statement could give a boost to the dollar.
- 1.3075 is a monthly support line. Below, there is support at 1.2962
- There is resistance at 1.3184 and 1.3328
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