Daily Price Outlook
During the European trading session, the GBP/USD currency pair prolonged its bullish rally and remained well bid around the 1.2603 level, hitting an intra-day high of 1.2607.
However, the reason for its upward trend can be attributed to investors turning cautious ahead of the UK employment data for the three months ending in December, set to be released on Tuesday.
Traders are closely watching this data to gauge the strength of the UK labor market, which could influence the Bank of England's future decisions. Meanwhile, the US Dollar Index (DXY) is struggling to stay above 106.70, its lowest level in over two months, adding some support to GBP/USD.
Another key factor influencing the British pound is the reaction of business owners to Chancellor of the Exchequer Rachel Reeves’ decision to raise employers’ contributions to National Insurance (NI). In the Autumn Budget, she announced an increase of 1.2%, bringing the rate to 15%, which will take effect in April.
This has raised concerns among businesses, as higher costs could impact hiring and overall economic growth. As a result, traders will be closely monitoring the UK labor market data to see how businesses are responding to these policy changes.
GBP/USD Gains Amid Cautious Sentiment Ahead of UK Employment Data
On the GBP front, the gains in the GBP/USD currency pair were mainly supported by investors being cautious ahead of the UK employment data for the three months ending in December, set to be released on Tuesday.
Investors are closely watching the UK labor market to see if business owners are still unhappy with the government’s decision to raise National Insurance contributions.
Chancellor Rachel Reeves recently announced a 1.2% increase, bringing the total to 15%, which will take effect in April. This move has led to a slowdown in private sector hiring, with only 35K new jobs added in the three months ending in November, a sharp drop from the 173K added in the previous period.
Meanwhile, Bank of England (BoE) Governor Andrew Bailey stated that he sees signs of weakness in the labor market but remains confident that inflation is on a downward path. The UK’s unemployment rate is expected to rise slightly to 4.5% in December.
Market participants will also be watching closely for UK wage growth data, as strong wage increases could keep inflation high, especially in the service sector.
The BoE has warned that inflation may pick up again before returning to its 2% target due to higher energy prices. As a result, weak employment conditions and high inflation expectations could raise concerns about stagflation risks. Later in the week, investors will also focus on UK CPI and Retail Sales data.
US Dollar Weakens as Market Sentiment Improves, Supporting GBP/USD
On the US front, the broad-based US dollar has been sluggish and remained subdued as market sentiment improved. The US dollar weakened as fears of an immediate global trade war eased after US President Donald Trump delayed the imposition of reciprocal tariffs, which are now unlikely to take effect before April 1.
Last week, investors had been worried about a potential trade war, expecting Trump to announce new tariffs on Thursday.
Meanwhile, recent US inflation data came in stronger than expected, with both the Consumer Price Index (CPI) and Producer Price Index (PPI) showing higher-than-anticipated numbers for January.
This has led to cautious remarks from Dallas Federal Reserve Bank President Lorie Logan, who emphasized the need for patience before adjusting interest rates. She stated that the Federal Reserve would closely monitor upcoming economic data, as well as geopolitical developments and Trump’s economic policies.
GBP/USD – Technical Analysis
GBP/USD is hovering around $1.25960, showing signs of consolidation after a recent pullback. The pair is trading just above its pivot point at $1.25795, which serves as a critical level for determining near-term direction.
Immediate resistance stands at $1.26310, and a breakout above this level could drive bullish momentum toward the next resistance zones at $1.26667 and $1.27037.
On the downside, immediate support is seen at $1.25498, followed by key levels at $1.25104 and $1.24765. A failure to hold above $1.25498 could accelerate selling pressure, potentially triggering a deeper correction.
The 50-day EMA at $1.24956 suggests that the broader trend remains supported, as the moving average aligns closely with key support levels. If buyers maintain control above the $1.25793 entry point, a move toward $1.26303 appears likely, making it a strategic buy opportunity with a stop loss at $1.25488.
From a technical perspective, GBP/USD is positioned for a potential breakout if it maintains strength above the pivot point of $1.25795.
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