Pound Sterling faces pressure after downbeat UK Employment data

• The Pound Sterling slips as weak Employment data lifts up BoE rate cut hopes.
• UK Employment data for the three months ending January indicates weak labor demand and slower wage growth.
• Investors shift focus to US Inflation data and UK monthly GDP.

The Pound Sterling (GBP) drops to the round-level support of 1.2800 in Tuesday’s European session as the United Kingdom Office for National Statistics (ONS) has reported soft Employment data. Figures from the UK ONS show that higher interest rates from the Bank of England (BoE) and deepening cost-of-living crisis are starting to dampen labor market conditions.

The UK’s Unemployment Rate increased to 3.9%, employers fired 21K workers, and Average Earnings grew at a slower pace in the three months ending January. The labor market data clearly demonstrates uncertainty over the economic outlook, which could force BoE policymakers to start reducing interest rates earlier than previously expected.

Investors should brace for high volatility in today’s session as the United States Bureau of Labor Statistics (BLS) will report the Consumer Price Index (CPI) data for February. The inflation data will provide fresh guidance on the US interest rates outlook.

Daily digest market movers: Pound Sterling drops on cooling UK labor market conditions

• The Pound Sterling falls sharply as the United Kingdom ONS reported softer-than-expected Employment data for the three months ending in January.
• The Unemployment Rate climbed to 3.9%, higher than expectations and the prior reading of 3.8%. UK employers laid off 21K workers against hiring of 72K job-seekers in three months ending in December. In February, the Claimant Count Change grew moderately by 16.8K from expectations of 20.3K. In January, individuals claiming jobless benefits were 3.1K, downwardly revised from 14.1K.
• Average Earnings Excluding Bonuses grew by 6.1%, against expectations and the previous reading of 6.2%. Earnings including bonuses rose at a slower pace of 5.6%, against the consensus of 5.7% and the prior reading of 5.8%.
• The pace at which Average Earnings (both with and without bonuses) for three months ending January declines is higher than expected by market participants. Slower wage growth is expected to allow Bank of England policymakers to consider rate cuts earlier than anticipated.
• Conversely, on Monday, BoE policymaker Catherine Mann warned that there is a long way to go to bring down inflation sustainably to the desired target of 2%. Mann was one of the two policymakers who voted for a rate hike in the February monetary policy meeting.
• This week, the Pound Sterling will remain in action as investors will shift focus to the UK monthly Gross Domestic Product (GDP) and the factory data for January, which will be published on Wednesday.
• The GBP/USD pair is expected to remain on its toes as the United States inflation data, released at 12:30 GMT, will lead the next move in the US Dollar.
• Monthly headline inflation is forecasted to have risen by 0.4% from 0.3% in January. In the same period, core inflation, which strips off volatile food and energy prices, is anticipated to have grown at a slower pace of 0.3% against the prior reading of 0.4%. As for annual figures, economists expect that the headline CPI will remain sticky at 3.1% and the core inflation will decelerate to 3.7% from 3.9% in January.

Technical Analysis: Pound Sterling falls to near 1.2820

The Pound Sterling edges down to the round-level support of 1.2800 against the US Dollar after downbeat UK labor market data. The near-term appeal of the GBP/USD is still upbeat as the 20-day Exponential Moving Average (EMA) at 1.2720 is sloping towards the north. The pair has corrected from a seven-month high of 1.2894 to near the horizontal support plotted from the August 10 high at 1.2819.

The 14-period Relative Strength Index (RSI) is inches lower from its recent peak of 71.33, but the broader momentum remains bullish.