Pound sterling price rebounds after strong UK employment and wage growth data
Pound sterling rebounds as UK job market defies slowdown concerns
The Pound Sterling (GBP) strengthened on Tuesday after the UK employment report exceeded expectations, signaling a robust labor market. The latest Office for National Statistics (ONS) report showed that the UK added 107K jobs in the three months ending December, significantly surpassing the 35K gain recorded in the previous period.
Meanwhile, the ILO unemployment rate remained steady at 4.4%, defying expectations of a rise to 4.5%.
The strong labor market report contradicts Bank of England (BoE) Governor Andrew Bailey’s earlier concerns about economic softness. Despite a better-than-expected Q4 GDP, the BoE recently cut its growth forecasts for 2025 to 0.75%, signaling a cautious stance on monetary policy.
GBP/USD price dynamics (Dec 2024 - Feb 2025) Source: TradingView.
Wage growth fuels inflation concerns
Alongside the employment surge, UK wage growth remained strong, raising concerns about inflation persistence. Average earnings excluding bonuses accelerated to 5.9%, up from 5.6%, while wages including bonuses rose to 6%, beating estimates of 5.9%. Sustained high wage growth could pressure the BoE to maintain interest rates at 4.5%, delaying anticipated rate cuts.
Investors are now awaiting UK Consumer Price Index (CPI) data for January, due Wednesday, which could shape future BoE rate decisions. The inflation print will be closely monitored, as strong price pressures may reinforce a hawkish stance, while softer inflation could bolster rate cut expectations.
GBP/USD outlook: Resistance at $1.26, key support at $1.225
The GBP/USD pair rebounded sharply, recovering from intraday losses, as the U.S. dollar (USD) weakened. The GBP/USD pair is trading above the key 50-day EMA at 1.25, shifting the near-term outlook to bullish.
If GBP/USD sustains above 1.26, further gains toward 1.281 (December 6 high) could follow. However, if sentiment shifts, a drop toward 1.225 (February 3 low) remains possible.
U.S. dollar under pressure as Trump delays tariff plan
The U.S. dollar Index (DXY) rebounded near 107 after hitting a two-month low of 106.5 last week. Market sentiment remains cautious as President Trump’s tariff plan faces delays, reducing safe-haven demand for the USD. Trump previously announced 25% tariffs on steel and aluminum imports, but further details remain postponed until April.
Additionally, Federal Reserve Governor Michelle Bowman reinforced expectations of higher-for-longer U.S. interest rates, stating that the benchmark rate remains in a “good place”, allowing for patience in monetary policy adjustments.
Traders are now focused on the FOMC minutes, set for release Wednesday, which will provide further insights into Fed policymakers' views on rate cuts.
In our last update, we highlighted GBP/USD’s breakout above 1.25, with key resistance at 1.26. The latest employment data reinforces BoE rate stability, suggesting GBP could remain resilient if inflation stays elevated.
