Pound Sterling edges lower after UK employment data

• The Pound Sterling slides below 1.3000 against the US Dollar as UK Average Earnings decelerated in the three months ending in May.
• UK labor market reports the addition of fresh payrolls against a severe drawdown in the three months ending in April.
• Rising expectations for Fed rate cuts in September have weighed on the US Dollar.

The Pound Sterling (GBP) exhibits a subdued performance against its major peers in Thursday’s London session. The British currency drops as United Kingdom (UK) Average Earnings data, a key measure of wage growth that fuels inflation in the service sector and has been a major barrier to the Bank of England’s (BoE) confidence for interest rate cuts, decelerated as expectedly.

Annual Average Earnings (Including and Excluding bonuses) rose by  5.7% in the three months ending in May, below the 5.9% and 6%, respectively, from the previous month. Though the wage growth momentum slowed, it is still higher than what is needed to be consistent for achieving price stability.

Meanwhile, the Office for National Statistics (ONS) reported that employers hired 19K job-seekers in the three months ending in May, against a drawdown of 140K employees in the previous reading. In the same period, the ILO Unemployment Rate was recorded at 4.4%, remaining in line with estimates and the former release.

Expectations for the BoE to begin reducing interest rates from the August meeting have already diminished due to sticky core Consumer Price Index (CPI) data for June. UK’s core CPI grew steadily by 3.5% due to sticky service inflation data.

Daily digest market movers: Pound Sterling declines moderately against US Dollar

• The Pound Sterling edges lower near the psychological support of 1.3000 against the US Dollar (USD) in Thursday’s European session. The broader appeal of the GBP/USD pair remains firm as the Federal Reserve (Fed) is widely expected to start lowering its key borrowing rates from the September meeting.
• The scenario of higher expectations for Fed rate cuts is unfavorable for the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers near an almost four-month low at around 103.70.
• Firm speculation for Fed rate cuts has been prompted by meaningful signs from June’s Consumer Price Index (CPI) report that the disinflation process has resumed after stalling in the first quarter of the year. Annual headline and core CPI, which excludes volatile food and energy prices, decelerated at a faster-than-expected pace.
• Cooling inflationary pressures have also improved Fed officials’ confidence that price pressures are on track to return to the central bank’s target of 2%. On Wednesday, Richmond Fed Bank President Thomas Barkin cited broadening disinflation as “very encouraged.” Barkin added he is sure policymakers will debate at the July policy meeting whether it is still appropriate to describe inflation as elevated, Reuters reported.

Technical Analysis: Pound Sterling trades above all short-to-long-term EMAs

The Pound Sterling drops to near 1.3000 against the US Dollar on a steady decline in the UK wage growth measure. However, the overall trend remains firm as the GBP/USD pair trades close to a fresh two-year high of 1.3044 recorded on Wednesday.

All short-to-long-term Exponential Moving Averages (EMAs) are sloping higher, suggesting a strong bullish trend.

The 14-period Relative Strength Index (RSI) jumps to near 70.00 for the first time in more than a year, indicating strong momentum towards the upside.

The major is expected to extend its upside towards the two-year high near 1.3140. If the GBP/USD pair faces selling pressure after UK data, the March 8 high near 1.2900 will be a key support for the Pound Sterling bulls.