GBP to USD Forecasts: Return to $1.24 in the Hands of Wage Growth

It is a busy day ahead for the GBP/USD. The UK Labour Market Overview for April 2023 will be in focus later this morning.

A larger-than-expected fall in claimant counts, a pickup in wage growth, and a fall in the UK unemployment rate would push the odds of a 25-basis point BoE interest rate hike higher in May.

Economists forecast employment to increase by 42.0k in February versus a 65.0k jump in January, with the unemployment rate expected to hold steady at 3.7%. However, economists forecast average earnings, including bonuses, to rise by 5.1% on a 3-month rolling basis in February, down from 5.7% in January.

Softer wage growth figures could force the BoE to wait on the March CPI Report (Wed) before providing further monetary policy forward guidance.

Investors should monitor Bank of England commentary. UK Labour Market stats and inflation numbers (Wed) could materially shift sentiment toward BoE monetary policy. However, no Monetary Policy Committee members are on the calendar to speak today, leaving chatter with the media to move the dial.

GBP/USD Price Action

This morning, the GBP/USD was up 0.07% to $1.23853. A mixed start to the day saw the GBP/USD fall to an early low of $1.23660 before rising to a high of $1.23878.

Better-than-expected economic indicators from China delivered a morning boost.

Technical Indicators

The Pound needs to move through the $1.2389 pivot to target the First Major Resistance Level (R1) at $1.2425 and the Monday high of $1.24382. A return to $1.24 would signal an extended breakout session. However, the Pound would need the UK labour market numbers and hawkish BoE chatter 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 $1.2474. The Third Major Resistance Level sits at $1.2559.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2340 in play. However, barring a data-fueled sell-off, the GBP/USD should avoid sub-$1.23. The Second Major Support Level (S2) at $1.2304 should limit the downside. Third Major Support Level (S3) sits at $1.2219.

Looking at the EMAs and the 4-hourly chart, the EMAs send bearish signals. The GBP/USD sits below the 50-day EMA, currently at $1.24262. 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 R1 ($1.2425) and the 50-day EMA ($1.24280) would give the bulls a run at R2 ($1.2474). However, a fall through the 100-day EMA ($1.23834) would bring S1 ($1.2340) 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 relatively quiet day on the US economic calendar. Housing sector data for March will draw interest, with housing starts and building permits due out. However, the US housing market appears to be off the Fed’s radar vis-à-vis monetary policy decisions, which should limit the influence of the numbers on the GBP/USD.

However, Fed chatter on monetary policy and the US economy would move the dial. We expect increased sensitivity to FOMC member commentary as the markets respond to guidance beyond May.