GBP/USD holds comfortably above 1.2600 after UK labor market data

GBP/USD edges higher toward 1.2650 in the European morning on Tuesday. The data from the UK showed that the ILO Unemployment Rate declined to 3.8% in December, while the annual wage inflation softened to 6.2% from 6.7%.

 

GBP/USD closed the last 4-hour candle above the 20-period and the 50-period Simple Moving Averages (SMA) and the Relative Strength Index (RSI) indicator on the four-hour Chart climbed above 50, reflecting a bullish tilt in the short-term outlook.

1.2670 (20-day SMA, 50-day SMA), aligns as key resistance before 1.2700 (psychological level, static level) and 1.2760 (static level). On the downside, first support is located at 1.2625 (20-period SMA, 50-period SMA) ahead of 1.2600 (psychological level, static level) and 1.2540 (Fibonacci 38.2% retracement of the latest uptrend).

 

GBP/USD gained traction and touched its highest level in more than 10 days above 1.2650 in the European session on Tuesday. Although the pair's near-term technical outlook points to a bullish tilt, buyers could refrain from betting on a steady advance unless 1.2670 resistance is cleared.

The UK's Office for National Statistics reported early Tuesday that the ILO Unemployment Rate declined to 3.8% in the three months to December from 4.2%. This reading came in below analysts' estimate of 4%. Other details of the report showed that wage inflation, as measured by the change in the Average Earnings Excluding Bonus, softened to 6.7% from 6.2%. Although both of these prints could be welcoming news for the Bank Of England (BoE), wage inflation is arguably still strong enough for policymakers to avoid cutting rates prematurely.

In the second half of the day, the US Bureau of Labor Statistics (BLS) will publish Consumer Price Index (CPI) data for January. On a monthly basis, the CPI and the Core CPI, which excludes volatile food and energy prices, are forecast to rise 0.2% and 0.3%, respectively. 

A stronger-than-expected monthly Core CPI print could provide a boost to the US Dollar with the immediate reaction and weigh on GBP/USD. On the other hand, a reading of 0.1% or lower could feed into expectations for a Federal Reserve policy pivot in May and force the USD to weaken against its major rivals. According to the CME FedWatch Tool, markets are pricing a 44% probability that the Fed's policy rate will remain unchanged at 5.25%-5.5% for the next two policy meetings.