Pound Sterling steadies after mixed UK Employment report

• The Pound Sterling remains on the sidelines around 1.2560 after weak UK Employment data.
• UK employers laid off workers for the third time in a row but wage growth remains steady.
• The US Dollar consolidates ahead of US inflation, Retail Sales data for April.

The Pound Sterling (GBP) remains in a confined range of around 1.2560 in Tuesday’s London session as investors take time to analyse the United Kingdom Employment data for three months ending in March. The United Kingdom (UK) Office for National Statistics (ONS) has reported that labor market has witnessed a drawdown for the third time in a row while wage growth momentum remains steady at relatively high levels.

UK employers laid off 177K workers, which was higher than the firing of 156K employees in the December-February period. The ILO Unemployment Rate rises to 4.3% as expected from the former reading of 4.2%. The labor market data clearly indicates that the economy is struggling to bear the consequences of higher interest rates by the Bank of England (BoE).

In the current scenario, the situation seems favorable for the BoE to begin reducing interest rates, as price pressures are also consistently softening. However, strong wage growth that is feeding service inflation will continue to remain a major concern for BoE policymakers.

Annual Average Earnings (both excluding and including bonuses) grew steadily by 6.0% and 5.7%, respectively, for the three months to March period. Investors anticipated Average Earnings, including bonuses, to decelerate to 5.3%.

Daily digest market movers: Pound Sterling consolidates as traders reassess BoE rate-cut hopes after UK Employment report

• The Pound Sterling ranges around 1.2560 against the US Dollar. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, rebounded after discovering buying interest near the weekly low at around 105.00. However, it has turned sideways, around 105.20, as investors await the United States Producer Price Index (PPI) data for April, which will be published at 12:30 GMT.
• Annual headline PPI is forecasted to have grown by 2.2% from 2.1% in March. In the same period, the core PPI, which strips off volatile food and energy prices, is estimated to have grown by 2.4%, at the same pace as the previous month. Economists anticipate that monthly headline PPI rose at a higher pace of 0.3% from the prior reading of 0.2% with core reading growing steadily by 0.2%.
• This week, the US economic calendar is filled with top-tier data. The next move in the US Dollar will be majorly driven by the Consumer Price Index (CPI) and Retail Sales data for April, which will be published on Wednesday. The consumer inflation data will influence speculation about the Federal Reserve (Fed) returning to policy normalisation from the September meeting.

Technical Analysis: Pound Sterling remains well-supported above 20-day EMA

The Pound Sterling exhibits strength near 1.2560 due to a strong near-term outlook. The GBP/USD pair remains comfortably established above the 20-day Exponential Moving Average (EMA), which trades around 1.2530. The pair has retraced 38.2% losses recorded from a 10-month high around 1.2900.

The Cable continues to face pressure near the neckline of the Head and Shoulder (H&S) chart pattern formed on a daily timeframe. On April 12, the pair fell sharply after breaking below the neckline of the H&S pattern plotted from December 8 low around 1.2500.

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, suggesting indecisiveness among market participants.