GBPUSD Bound to Break Support on 3rd Attempt As UK Unemployment Jumps

GBPUSD has been testing the 100 daily SMA several times recently and chances are that it will break below this time, as sellers keep returning. The USD is in the middle of a bullish trend, while the Bank of England has started to lower interest rates, which will increase in time and further weigh on the British Pound.

After a strong rally from April to September pushed this pair above 1.34, a sharp bearish reversal began in October, driven by renewed USD buying. The pair fell roughly 6 cents by the end of October, eventually encountering the 100-day SMA (in red) on the daily chart, which has consistently acted as support. Following Donald Trump’s election victory, sellers brought the price down to this support level again, although Thursday saw a temporary 1.5-cent rally on speculated Chinese stimulus hopes.

The green 100-day SMA offered resistance, causing the price to fall once more, testing the red moving average for a third time. Given the repeated tests, sellers may soon breach this level, and the dollar’s recent strength suggests continued momentum moving into next week.

GBP/USD Chart Daily – The 20 SMA Stopped the Retrace

Despite the partial US market closure yesterday, the dollar extended gains against major currencies, including the yen, euro, pound, and Swiss franc. GBP/USD traded lower, closing the US session around 1.2860 after dipping from 1.2920. The pound has faced additional pressure from the UK government’s new £40 billion tax increase, which could weigh on businesses and consumers, adding to economic strain as recent retail reports indicate declining prices.

Conversely, the US dollar has shown resilience, bolstered by robust US economic indicators and expectations of rising inflation under President-elect Donald Trump’s policy agenda. Higher inflation could complicate aggressive rate cuts by the Fed, which would further strengthen the dollar.

UK Employment and BoE Policy Outlook

Today’s UK employment report could shape expectations for the Bank of England’s upcoming policy decision in December. The BoE recently cut interest rates by 25 basis points to 4.75%, but with inflation dropping to 1.7% in September, further rate cuts are anticipated. Last month, job growth exceeded forecasts with a jump of 373,000 compared to the projected 250,000, though a market estimate of a 50,000-job decline now suggests potential softening.

Unemployment is expected to inch up from 4% to 4.1%, while wage growth (excluding bonuses) is forecasted to slow to 4.7% from 4.9%. Although pay growth remains solid, the BoE remains concerned about a potential wage-price spiral as inflation pressures rise, particularly in the services sector due to high wage gains.

UK Employment Report for October

• UK September ILO unemployment rate 4.3% vs 4.1% expected
• Prior 4.0%
• Employment change 219k vs 290k expected
• Prior 373k
• Average weekly earnings +4.3% vs +3.9% 3m/y expected
• Prior +3.8%; revised to +3.9%
• Average weekly earnings (ex bonus) +4.3% vs +4.7% 3m/y expected
• Prior +4.9%
• October payrolls change -5k
• Prior -15k; revised to -9k

GBP/USD Live Chart