Pound Sterling (GBP/USD, GBP/JPY) Analysis
Employment and Earnings Data May Weigh on BoE Inflation Projections
UK employment data rose in December after witnessing even greater additions in the two months prior. Momentum in the job market appears to be positive but a reweighting of the Labour Force Survey from today onwards means that volatile readings may continue to appear in the coming months. By their own admission the Office for National Statistics (ONS) states, ‘…we would advise caution when interpreting short-term changes in headline rates and recommend using them as part of our suite of labour market indicators alongside Workforce Jobs, claimant count data and Pay As You Earn Real Time Information (PAYE RTI) estimates’. The reweighting is meant to improve the representativeness of Labour Force Survey estimates.
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The average earnings figure is down from prior readings but beat estimates, perhaps a sign that wage growth will not decline in a more linear fashion. The Bank of England (BoE) revealed in their updated quarterly projections that average earnings is expected to head towards 4.25% at the end of this year. Also included in the economic projections was a massive improvement in inflation which the Bank estimates will reach the 2% target at the end of 2H. For that to materialize, more softening in the job market is likely to be needed along with further easing in the average earnings data.
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Sterling Rises in a Week Filled with UK Data
GBP/USD rose after the employment and earnings data as the pair returns to a familiar range. GBP/USD attempted to break below the trading range that had formed late last year and continued at the start of 2024 but ultimately lacked the required momentum.
The pair is now back above the 200-day simple moving average (SMA) and heading higher within the trading range highlighted in orange. With UK inflation and GDP data also due this week, it could be a noisy one for sterling. CPI is forecast to rise slightly, while the local economy potentially dipped into a technical recession in the final quarter of last year – something that could weigh in the pound. However, the preliminary version of the data is always subject to revision at later dates, meaning that a tiny contraction in Q4 may not have a massively negative impact on the pound.
Resistance appears at 1.2736 with support at range support (1.2585)
GBP/USD Daily Chart
Source: TradingView, prepared by Richard Snow
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GBP/JPY Attempts to Conquer Key Resistance Level
GBP/JPY received a boost on the back of employment and earnings data, seeing the pair trade above 188.80 – a significant level of resistance which prompted prior reversals. The Japanese yen has depreciated this year as Bank of Japan members distances themselves from any imminent policy changes regarding the interest rate, signalling a preference to wait for key wage negotiations to run their course and observe further inflation data. One risk to further upside would be if we see the Japanese Finance Ministry express its displeasure at the recent yen weakness.
GBP/JPY Daily Chart
Source: TradingView, prepared by Richard Snow
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
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