UK labor market is cooling faster than expected

16 January 2024 135
UK labor market is cooling faster than expected

The GBPUSD currency pair from the beginning of 2024 actively tried to break through the resistance level of 1.275 from below. After the failure, buyers reduced their activity, and the bears immediately took advantage of it. The decline in the price of the pound against the dollar started last Friday, and in today's trading, the downward momentum accelerated significantly. At this rate, the level of 1.262 will be reached in the next few days.

The reason for a sharp fall in GBPUSD quotes was a recent report on the UK labor market. Market participants paid special attention to the growth rate of wages. This indicator sharply slowed down from 7.2% to 6.5% with more moderate expectations of 6.8%. Excluding the pandemic period, the slowdown in wage growth was the highest since 2001. It was also the first time the indicator was below 7% in the last 8 months.

Cooling of the labor market was also confirmed by the figures on open vacancies. Their number decreased by 49 000, down to 934 000. According to Bloomberg estimates, this will contribute to normalization of price growth rates. British inflation is expected to slow from 3.9% to 3.6% in the first quarter of 2024 and to 2.1% in the second quarter. Yael Selfin, economist at KPMG UK, noted a positive impact of published statistics on further actions of the Bank of England.

The consensus forecast of analysts now comes down to the first key rate cut by the British regulator in May, followed by 4 more similar steps by the end of this year. These expectations may be further boosted after tomorrow's inflation data. Price growth is expected to slow minimally from 3.9% to 3.8%. If the actual figures turn out to be better than forecast, GBPUSD will remain under pressure.

The nearest target for sellers of the pound against the dollar is the area of monthly lows, located near the level of 1.262. If successful, the price may head towards 1.25, but this seems to be a more distant prospect.

The following trading strategy may be offered:

Sell GBPUSD at the current price. Take profit – 1.262. Stop-loss – 1.275.

Also, traders can use a Trailing Stop instead of a fixed Stop-loss at their discretion.

This content is for informational purposes only and is not intended to be investing advice.

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