Pound Sterling Holds Steady Ahead of Key UK Economic Data

The Pound Sterling (GBP) maintains stability against major currencies on Monday as investors brace for upcoming UK employment and inflation data. Market participants remain cautious, closely monitoring economic indicators that could impact the Bank of England’s (BoE) policy decisions.

UK Employment Data and Market Sentiment

Investors await the UK labor market data for the three months ending December, scheduled for release on Tuesday. This data will provide insights into the impact of Chancellor Rachel Reeves’s decision to raise employers’ National Insurance (NI) contributions by 1.2% to 15%, effective from April. Since this policy announcement, hiring in the private sector has decelerated significantly, indicating growing concerns among business owners.

In the three months ending November, UK employment saw a modest increase of 35,000 jobs, a steep decline compared to the 173,000 added in the August-October period. BoE Governor Andrew Bailey, in an interview with BusinessLive, acknowledged some weakness in labor demand and expressed confidence in the ongoing disinflation trend. Bailey stated that the broader economic environment does not suggest persistent inflationary pressure.

The UK Office for National Statistics (ONS) is expected to report a rise in the ILO Unemployment Rate to 4.5% in December from the previous 4.4%. Additionally, Average Earnings, a key indicator of wage growth and a contributor to high inflation in the service sector, are projected to rise to 5.9%, up from 5.6%. Strong wage growth could heighten concerns about inflationary pressures remaining elevated. The BoE has previously warned that inflation may accelerate before gradually easing toward its 2% target due to higher energy prices.

Economic Risks and Inflation Outlook

A combination of weak employment conditions and persistent inflation pressures could elevate the risk of stagflation. Investors will also focus on the UK’s Consumer Price Index (CPI) and Retail Sales data for January, due on Wednesday and Friday, respectively, for further economic direction.

Market Trends: GBP/USD Performance and US Dollar Influence

The Pound Sterling remains range-bound near 1.2600 against the US Dollar (USD) in Monday’s European session. Meanwhile, the US Dollar Index (DXY) struggles to maintain support at 106.70, its lowest level in over two months.

The US Dollar remains under pressure amid improved market sentiment. Last week, global risk appetite increased following the delay in the implementation of reciprocal tariffs by US President Donald Trump. Initially expected to be announced last Thursday, the tariffs are now unlikely to take effect before April 1, reducing immediate fears of a global trade war.

Additionally, last week’s US inflation data—both the Consumer Price Index (CPI) and the Producer Price Index (PPI)—came in stronger than expected. Dallas Federal Reserve Bank President Lorie Logan reiterated that the central bank should remain cautious about cutting interest rates. Logan emphasized the importance of closely monitoring inflation data and geopolitical risks before making policy adjustments.

Technical Analysis: GBP/USD Poised for Further Gains

The GBP/USD pair remains within Friday’s trading range but aims to break decisively above the 38.2% Fibonacci retracement level at 1.2620. The near-term outlook appears bullish, with the pair holding above the 50-day Exponential Moving Average (EMA) near 1.2500.

The 14-day Relative Strength Index (RSI) has advanced above 60.00, indicating potential bullish momentum if sustained. On the downside, key support lies at the February 3 low of 1.2250, while resistance is expected at the 50% Fibonacci retracement level of 1.2767.

As the market anticipates critical UK economic data, traders remain watchful of further developments that could shape monetary policy and influence GBP price movements