The GBPUSD currency pair has completed the pullback from the November highs. The quotes found support at 1.222 and have been rebounding upwards since the beginning of the current week. A quick return above 1.24 may not take place, but at least the level of 1.235 is definitely within the reach of market participants. Fundamental factors can also help the pound to strengthen against the dollar.
Today the UK Statistics Authority published data on the labor market for the third quarter. Except for the jobless claims, all other figures were stronger than analysts' forecasts. Particular attention should be paid to the rate of wage growth: the figure slowed only slightly from 8.2% to 7.9%, while a sharper rise to 7.4% was expected. Apparently, the UK labor market is still not showing significant weakening.
The Bank of England has said pay growth is dropping too slowly for it to consider cutting interest rates. At the same time, central bank officials have also said that unofficial estimates of wage increases suggest a less steep climb than the ONS numbers. In any case, the stability of the labor market gives a signal that the UK regulator won’t ease monetary policy in the near future. This is a factor in favor of the pound’s strengthening.
Today's statistics on inflation in the U.S. for October could help GBPUSD to accelerate growth. According to Bank of America’s forecasts, the rate of price growth will slow down from 3.7% to 3.3%. Firstly, positive expectations are associated with a 1.8% month-on-month drop in energy costs. Secondly, there is deflation in the housing market, which can further improve the picture with the price growth indicator.
The pound-dollar exchange rate has a good chance to strengthen to the level of 1.235. In case of success, the bulls could expect strengthening of the pair to the level of 1.24, but it won’t be easy to get a foothold there.
The following trading strategy can be suggested:
Buy GBPUSD at the current price. Take profit — 1.235. Stop loss — 1.222.
Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.