UK robust labour market data supported GBP/USD

  • GBP/USD is trading higher after significant economic releases from the US and UK.
  • The UK labor market is still strong.
  • Consumer inflation in the United States slowed modestly in February.

GBP/USD Fundamentals and news

GBP/USD is trading at 1.2196, up by 0.12% in a day. The currency pair gained momentum after data showed strong labor market data in the UK and inflation in the US slowed in February.

Stronger than Expected UK Labor Market data helped GBP/USD

In the United Kingdom, Jobless claims have declined by about 50,000 in the last three months following a protracted stabilization period, indicating that the economy is stronger than previously assumed.

Early on Tuesday, data showed that, in contrast to experts’ average prediction of an increase of 12.5k, jobless claims in the UK decreased by 11.2k in February.

In the three months leading up to January, the unemployment rate held steady at 3.7%, not far from a nearly 50-year low. The ongoing demand of the labor market is pushing rising wages.

Moreover, total earnings and salaries for the three months ending in January were 5.7% higher than the last year.

The strong employment data offers local support for the Pound, fuelling risk sentiment and the GBP/USD rise.

Meanwhile, traders are awaiting Treasury Secretary Jeremy Hunt’s budget statement on Wednesday. According to reports, the budget would continue to prioritize fiscal consolidation while deferring to the next year the task of using tax cuts to win back lost favor.

Furthermore, according to Reuters, futures contracts for interest rates are already pricing in a 40% chance that the Bank of England won’t raise its policy rate at the forthcoming meeting. As a result, traders might avoid placing bets on a stable British Pound gain soon. Dovish BOE wagers might restrict the Pound’s upward potential.

US Inflation slowed and helped USD, weighing on currency pair

Silicon Valley Bank recently experienced withdrawal and transfer limitations due to financial concerns. However, following the government’s guarantee to protect all depositors, account holders were allowed complete access to their money on Monday.

Moreover, the Fed created a rescue strategy in reaction to the SVB’s consequences and to address any damage to the US financial system, which decreased market risk. The dollar also rebounded as the trauma of US bank failure faded.

Meanwhile, on Tuesday, a report revealed that consumer pricing data suggested that inflation was still growing but on a downward trend.

Inflation in the US, determined by the economic indicator, Consumer Price Index (CPI), dropped from 6.4% in January to 6% in February. The reading was in line with what the market was anticipating. The m/m CPI increased by 0.4%, as predicted by economists.

The Core CPI, which excludes volatile food and energy costs, climbed 0.5% versus a market projection of 0.4%, lowering the annual rate to 5.5% from 5.6%.

After the failure of Silicon Valley Bank caused turmoil in the financial markets, investors are now divided on whether slightly increasing inflation would force the Fed to boost rates again at its policy meeting next week.

Nevertheless, as consumer pricing data revealed inflation was still growing, the dollar slightly increased on Tuesday. DXY is trading at 103.71, up 0.11% in the past day. US 10-Year Bond Yield also increased at 3.609. The rising dollar capped the rise of GBP/USD.

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