Market Analysis

GBP Strengthens Following Positive UK Labor Market Report

Amos Simanungkalit · 15 Apr26.6K Views

Image Credit: DailyFx

The Pound Sterling (GBP) strengthened against most major currencies, except for the antipodeans, on Tuesday following the release of UK labor market data for the three months ending in February. The Office for National Statistics (ONS) reported a significant increase of 206K new jobs, well above the 144K recorded in the three months ending in January.

The ILO Unemployment Rate remained unchanged at 4.4%, in line with expectations, which is supportive for the British currency. However, market participants anticipate that employers may slow hiring as a result of the increased social security contributions starting in April, as announced in the Autumn budget. UK Chancellor of the Exchequer, Rache Reeves, raised employers' National Insurance (NI) contributions from 13.8% to 15%.

Meanwhile, Average Earnings Excluding Bonuses, a key indicator of wage growth, increased by 5.9%, slightly below the expected 6%. In January, this measure had risen by 5.8%, revised down from 5.9%. Average Earnings Including Bonuses grew by 5.6%, falling short of the anticipated 5.7%. Despite the mixed earnings data, market expectations for the Bank of England (BoE) to cut interest rates at the May policy meeting remain unchanged.

Investors will now look to the UK Consumer Price Index (CPI) data for March, set to be released on Wednesday, for further insights into the interest rate outlook. Economists expect the core CPI, excluding volatile food and energy prices, to remain steady at 3.5%.

The Pound extended its winning streak to six consecutive trading days, climbing above 1.3200 against the US Dollar (USD). The short-to-long Exponential Moving Averages (EMAs) are all trending upwards, signaling a positive near-term outlook for the pair. The 14-day Relative Strength Index (RSI) shows a strong bullish recovery, rising from 40.00 to 65.00.

On the downside, the 61.8% Fibonacci retracement level from the late September high to mid-January low, around 1.2927, serves as a key support zone. On the upside, the three-year high of 1.3430 is seen as a key resistance level.