GBP to USD Forecasts: $1.26 Eyed on UK Wages and the US Debt Ceiling

It is a busy Tuesday session for the GBP/USD. UK wage growth, claimant counts, and unemployment figures will move the dial. While the Bank of England stated surprise about the economy, inflation remains sticky at 10.1%. A pickup in wage growth would force the Bank of England to take a more hawkish monetary policy position to avoid inflation becoming embedded.

Economists forecast average earnings, including bonuses, to increase 5.8% year-over-year versus 5.9% in April. While wage growth will garner more interest, a sharp decline in claimant counts and an increase in the UK unemployment rate would test buyer appetite.

However, investors should monitor Bank of England commentary following the hawkish BoE interest rate hike. There are no Bank of England Monetary Policy Committee members on the calendar to speak, leaving investors to track chatter with the media.

Earlier today, the Chinese economy set the tone. Industrial production increased by 5.6% year-over-year in April versus a forecasted 10.9%. Industrial production rose by 3.9% in March. Retail sales surged by 18.4% year-over-year versus 10.6% in March. Economists forecast a 21% increase. While falling short of forecasts, industrial production increased at the most marked pace since September 2022, when production increased by 6.3%.

GBP to USD Price Action

This morning, the GBP/USD was up 0.01% to $1.25288. A mixed start to the day saw the GBP/USD fall to an early low of $1.25145 before rising to a high of $1.25324.

Technical Indicators

Resistance & Support Levels

The Pound needs to avoid the $1.2502 pivot to target the First Major Resistance Level (R1) at $1.2561. A move through the Monday high of $1.25347 would signal an extended breakout session. However, the Pound would need economic data from China and the US and debt ceiling-related news to support a breakout session.

In the event of an extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.2594 and resistance at $1.26. The Third Major Resistance Level sits at $1.2686.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2469 into play. However, barring another risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.2450 and the Second Major Support Level (S2) at $1.2410. The Third Major Support Level (S3) sits at $1.2318.

Looking at the EMAs and the 4-hourly chart, the EMAs send bearish signals. The GBP/USD sits above the 100-day EMA, currently at $1.24247. The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through the 50-day EMA ($1.25442) would support a breakout from R1 ($1.2561) to target R2 ($1.2594) and $1.26. However, a fall through the 100-day EMA ($1.25247) would bring S1 ($1.2469) and 200-day EMA ($1.24602) into view. A move through the 50-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, it is a busy day on the US economic calendar. US retail sales and industrial production numbers will draw interest. We expect the retail sales figures to have more impact, with the markets focused on the effects of inflation and the Fed on consumption and the broader economy.

Economists forecast retail sales to increase by 0.7% in April versus a 0.6% fall in March. Retail sales have fallen in four of the last five months.

However, investors should also consider FOMC member commentary, with FOMC members Bostic, Barr, and Williams delivering speeches today.

Beyond the economic calendar, the banking sector and the US debt ceiling will also need monitoring. Over the weekend, President Joe Biden announced he would enter talks with policyholders before departing for the G7 Summit on Wednesday.