GBP/USD Daily Forecast – Sterling Rallies as UK Unemployment Holds at 3.8%

The Office for National Statistics reported the annual unemployment rate at 3.8% which was in line with expectations. There were 15 thousand people claiming unemployment benefits in December which was well below the analyst estimate of 33 thousand.

The estimated employment rate edged up to 76.3% which is a record high for the UK. The discrepancy between the rise in employment while the unemployment rate remained steady is attributed to a small rise in people seeking jobs.

The upbeat report has encouraged buyers and GBP/USD is seen extending on yesterday’s gain.

How the Bank of England responds to the report will be important. While the jobs report looks strong on the surface, several policymakers have noted slack in job markets in recent speeches. One aspect of the labor market the BoE is paying close attention to is wage inflation. Today’s report revealed wages rising at 3.2% annually, unchanged from the prior reading.

Technical Analysis

GBP/USD bounced higher after testing a major support level at 1.2961 and is seen extending the gain following the UK jobs report.

The pair is now approaching a horizontal level at 1.3050. This level was important last week as the pair gapped below it at the open. It also acted as resistance on a recovery that followed last week’s UK retail sales report.

The exchange rate shows near-term upward momentum, although from a slightly broader perspective, the pair is essentially holding within a range. A horizontal level at 1.3109 has been holding rallies to the upside while the mentioned support level at 1.2961 has held declines.

Potential for a range break increases later in the week as the UK will release its latest purchasing manager index figures for the services and manufacturing sectors. Friday’s PMI figures will have an impact on the exchange rate and the BoE’s policy decision next week.

Bottom Line

• GBP/USD is rallying on an upbeat UK jobs report.
• The pair has been holding in a range since the 9th of the month.
• Friday’s PMI figures will be the last major data release ahead of the BoE meeting next week.