Market Data 
- The Pound Sterling fails to hold the intraday recovery as BoE Bailey reiterates caution on the economic outlook.
- The UK economy added 107K workers and the jobless rate remained steady at 4.4%, lower than estimates of 4.5%.
- Investors await the UK CPI data and the FOMC minutes on Wednesday.
The Pound Sterling (GBP) gives up an upbeat United Kingdom (UK) labor market data-driven recovery against its major peers on Tuesday. The British currency falls back as Bank of England (BoE) Governor Andrew Bailey has reiterated his concerns over the economic outlook. Bailey said in an event hosted by Bruegel, in Brussels in Tuesday’s European session that we (officials) are facing a “weak growth environment” in the UK and added that we are in a period of “heightened uncertainty”.
Bailey also said in his interview with the BusinessLine on Monday that the economic outlook is sluggish and surprisingly upbeat Q4 Gross Domestic Product (GDP) data had not changed the “bigger picture”. In February’s monetary policy statement, the BoE halved its growth forecasts for the year to 0.75%.
On Tuesday, Bailey’s comments came after the UK employment data release. Earlier in the day, the Pound Sterling bounced back after the release of the strong employment data for the three months ending December. The Office for National Statistics (ONS) reported that the economy added 107K workers, significantly higher than the 35K seen in the September-November period.
The ILO Unemployment Rate remained steady at 4.4%, while it was anticipated to have accelerated to 4.5%. Investors were worried about the employment data as business owners had been disappointed with Chancellor of the Exchequer Rachel Reeves’s announcement of raising employers’ contribution to National Insurance (NI). In the Autumn Budget, Reeves increased employers’ social security contributions by 1.2% to 15%, which will come into effect from April.
In addition to strong employment figures, Average Earnings data, a key measure of wage growth, accelerated in the three months ending December. Average Earnings Excluding bonuses accelerated to 5.9%, as expected, from the prior reading of 5.6%. Meanwhile, Average Earnings, Including bonuses, rose by 6%, faster than estimates of 5.9% and the former release of 5.6%. High wage growth momentum would prompt inflation expectations and force the BoE to hold interest rates at 4.5%.
On Monday, Andrew Bailey also stated that he sees some softness in the labor market and has now commented after the data release that the latest job data looks on the quantity “not far out of line,” and the pay growth has risen “less” than we expected.
Going forward, investors will focus on the UK Consumer Price Index (CPI) data for January, which will be released on Wednesday.
Daily digest market movers: Pound Sterling slumps against US Dollar
- The Pound Sterling is down about 0.3% to near 1.2585 against the US Dollar (USD) in Tuesday’s North American session. The GBP/USD pair declined as the US Dollar rebounded, with the US Dollar Index (DXY) recovering to near 107.00 from the two-month low of 106.50, which it posted on Friday.
- The Greenback bounces back as investors expect inflationary pressures stemming from United States (US) President Donald Trump’s economic agenda will be persistent. President Trump has announced 25% tariffs on steel and aluminum imports from all nations and 10% on China. However, Trump’s reciprocal tariff plan is delayed and unlikely to come into effect before April. President Trump’s nominated Commerce Secretary, Howard Lutnick, said on Thursday that the President will be ready to move on reciprocal tariffs by April 1.
- Meanwhile, firm expectations that the Federal Reserve (Fed) will keep interest rates at their current levels for longer have also offered support to the US Dollar. Fed Governor Michelle Bowman said in her prepared remarks at the American Bankers Association conference on Monday that the benchmark interest rate “is now in a good place”, allowing the Committee to be patient and pay closer attention to the inflation data as it evolves. Bowman added that she wants to gain “greater confidence” that progress in lowering inflation will “continue” before supporting monetary policy adjustments.
- Going forward, the Federal Open Market Committee (FOMC) minutes for the January meeting, which will be released on Wednesday, will be a major trigger for the US Dollar. Investors will look for cues about how long the Fed will keep interest rates in the current range of 4.25%-4.50%.
Technical Analysis: Pound Sterling struggles to extend its upside above 1.2600
The Pound Sterling faces pressure to hold above the key level of 1.2600 against the US Dollar in European trading hours on Tuesday. The near-term outlook of the GBP/USD pair has turned bullish, as it holds above the 50-day Exponential Moving Average (EMA), which stands at around 1.2500.
The 14-day Relative Strength Index (RSI) holds above 60.00. A bullish momentum would activate if the RSI (14) sustains above that level.
Looking down, the February 3 low of 1.2250 will act as a key support zone for the pair. On the upside, the December 6 high of 1.2810 will act as a key resistance zone.
