Gbpusd falls as UK rate cut and mixed US data influence market sentiment

GBPUSD Analysis

Performance after Thursday
Period	Pct	Chg	Momentum
Thursday	-0.63%	-78.7 Pips
Week to-date	1.12%	137.4 Pips
February	0.06%	7.3 Pips

Upcoming key events (London Time)

Fri 01:30 PM USD Nonfarm Payroll Employment

What happened lately

In the United States, economic data for the fourth quarter has presented mixed signals. The Bureau of Labor Statistics reported a rise in Unit Labor Costs, with a flash estimate of 3% in Q4, up from 0.8% in the previous quarter. This increase indicates rising compensation to workers which might be tied to increased production demands or inflationary concerns. However, the same quarter experienced a decrease in Nonfarm Business Labor Productivity, dropping to 1.2% from 2.2% in Q3. This decline suggests that the efficiency of businesses has fallen, possibly leading to increased costs for businesses as they produce less output per hour worked. Unemployment Insurance Claims rose to 219K in early February, reflecting a slight increase in layoffs or reduced hiring activities compared to the previous revised figure of 208K. Although not dramatic, this could be a sign of a marginal softening in the labor market.

In the United Kingdom, the Bank of England decided to cut its Bank Rate from 4.75% to 4.5%. This reduction in the interest rate might have been implemented to stimulate economic growth by making borrowing cheaper for consumers and businesses. However, it might also reflect concerns about economic slowdown or an effort to boost consumer spending and investment. The interest rate decision aligns with the need to remain competitive and attractive for investments, potentially amid uncertainties in the broader economic context.

Regarding the GBPUSD, the combination of weaker economic signals from the U.S and the interest rate cut in the U.K led to a drop of 0.63% in the currency pair on Thursday, being quoted at 1.24294. The decrease in U.S. productivity alongside increased labor costs could hint at inflation pressures, affecting the dollar’s strength. Conversely, the Bank of England’s rate cut might have initially weakened the pound but can also be interpreted as a measure for economic growth which could stabilize the pound against the dollar. The upcoming high-impact U.S. Nonfarm Payroll Employment data can further sway market expectations and potentially provide more volatility in the GBPUSD pair, contingent on how these figures align with current economic sentiments.

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What can we expect from GBPUSD today?

GBPUSD on Thursday dropped -0.63% to 1.24294. Price is above 9-Day EMA while Stochastic is rising.

Updated daily direction for GBPUSD looks bearish as the pair posted lower in Thursday trading session.

Looking ahead for the day, immediate support level is at S1 1.23564 with break below could see further selling pressure towards S2 at 1.22833. To the upside, with the current momentum bearish, we prefer to look at breakout of the recent daily high of 1.25093 as a potential indicator of buying interest. Failure to break the resistance level would continue to echo bearish sentiment. A close below 1.23598 would indicate selling pressure.

For the week to-date, take note that GBPUSD is mixed as compared to the prior week.

Key levels to watch out:

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