Overview
The British pound has surged to a four-week high, buoyed by strong UK employment data and expectations of a hawkish stance from the Bank of England (BoE) ahead of the upcoming inflation report. With a rate hike in November nearly fully anticipated, an unexpected rise in inflation could further support the pound's strength.
UK Employment Resilience
Recent employment figures indicate a robust UK economy, with unemployment dropping to 4.7% from 4.9% in September. Payroll employment increased by 13,000, and wage growth reached 3.7% year-on-year, surpassing expectations. However, a decline in job vacancies to 691,000 suggests that underlying labor demand may still be weak.
Market Expectations
Money markets are pricing in a 25 basis point hike to 4% on November 5, with further tightening anticipated into 2027. BoE policymaker Megan Greene has emphasized the need for pre-emptive tightening due to rising inflation risks, contrasting with Governor Andrew Bailey's more cautious outlook.
Upcoming CPI Report
The September Consumer Price Index (CPI) report is expected to show an increase in headline inflation to 3.4% year-on-year from 3.1%. A surprise increase could enhance the pound's interest rate advantage, while a softer inflation reading might challenge the current tightening expectations.
Technical Outlook for GBP/USD
The GBP/USD pair has reached a four-week high, driven by positive employment and wage data. Resistance is currently observed around the 200-day EMA and the 1.34 level. The Relative Strength Index (RSI) indicates potential for further gains, with bullish targets set at 1.3475 and 1.3543.
Technical Outlook for GBP/AUD
The GBP/AUD pair is forming a potential inverse head and shoulders pattern, which may take time to develop. The daily chart shows a bullish breakout from a bull flag, with resistance around the 200-day EMA. Traders are advised to look for bullish reversal patterns above the swing low of 1.859.