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GBP to USD Forecast: Sub-$1.2650 Hinged on UK Wage Growth

By:
Bob Mason
Published: Aug 15, 2023, 05:16 GMT+00:00

Amid a bustling Tuesday, the British Pound grapples with key indicators as wage growth emerges as the focal point of the UK Labour Market Overview.

GBP to USD Technical Analysis - FX Empire

Highlights

  • UK Labour Market Overview in focus, with wage growth as the key parameter for today.
  • BoE may shift to a more hawkish stance if UK wage growth accelerates, bolstering GBP.
  • GBP to USD pair navigates a critical junction, sitting below the key $1.2785 – $1.2862 resistance band.

On Monday, the GBP to USD declined by 0.10% to wrap up the day at $1.26798.

It is a busy Tuesday for the GBP to USD. This morning, the UK Labour Market Overview will move the dial. While claimant counts and the unemployment rate will draw interest, wage growth remains the focal point. A pickup in wage growth would support a more hawkish BoE policy outlook.

Economists forecast average earnings plus bonuses to increase by 7.3% year-over-year in July versus 6.9% in June.

Wage growth is a focal point of central banks. Wage growth fuels demand-driven consumer price inflation and may require monetary policy action. Higher interest rates would force companies to reduce employment levels leading to falling wages and reduced purchasing power. Higher unemployment also curbs consumption.

While the UK economic calendar is busy, no Bank of England Monetary Policy Committee Members are on the calendar to speak today, leaving chatter with the media to influence.

Economic indicators from China failed to spook investors this morning. News of the PBoC cutting key policy rates offset the negative numbers.

The US Session

US retail sales and the NY Empire State Manufacturing Index will move the dial. We expect the retail sales figures to have more impact.

Economists forecast retail sales to increase by 0.4% in July versus +0.2% in June.

A jump in retail sales could force the Fed to hike rates to curb spending and eliminate the demand effect on consumer price inflation. However, with the manufacturing sector accounting for less than 30% of the US economy, the NY State numbers are unlikely to influence the Fed.

GBP to USD Price Action

Weekly Chart sends mixed signals.
GBPUSD 150823 Weekly Chart

Daily Chart

The Daily Chart showed the GBP to USD sat below the $1.2785 – $1.2862 resistance band. Looking at the EMAs, the GBP to USD sat below the 50-day EMA while holding above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

Looking at the 14-Daily RSI, 42.19 reflects bearish sentiment. The RSI signals a fall to sub-$1.2650 to bring the $1.2520 – $1.2440 support band into view. However, a GBP to USD move through the 50-day EMA would give the bulls a run at the $1.2785 – $1.2862 resistance band.

GBP to USD Daily Chart sends mixed signals.
GBPUSD 150823 Daily Chart

4-Hourly Chart

Looking at the 4-Hourly Chart, the GBP to USD hovers below the $1.2785 – $1.2862 resistance band. The GBP to USD also sits below the 50-day and 200-day EMAs, sending bearish near and longer-term price signals.

The 14-4H RSI reading of 46.03 reflects bearish sentiment, with selling pressure outweighing buying pressure. Significantly, the RSI signals a fall to sub-$1.2650 to bring the $1.2520 – $1.2440 support band into play.

GBP to USD 4-Hourly Chart affirms bearish near-term price signals.
GBPUSD 150823 4 Hourly Chart

About the Author

Bob Masonauthor

With over 28 years of experience in the financial industry, Bob has worked with various global rating agencies and multinational banks. Currently he is covering currencies, commodities, alternative asset classes and global equities, focusing mostly on European and Asian markets.

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