GBP/USD climbs sharply towards 1.2080 on US mixed data

• GBP/USD marches firmly towards the confluence of the 20/50-DMA around 1.2110.
• US Industrial Production surprises to the upside, while housing data continues to worsen.
• UK employment figures were better-than-expected, further cementing the case for a 50 bps BoE rate hike.

The GBP/USD snaps three days of losses and approaches the 1.2100 figure as the greenback begins to weaken, in the middle of the North American session, courtesy of resurfacing recession fears with US data showing signs of an economic slowdown.

The GBP/USD is trading at 1.2081, after hitting a daily low at 1.2007, during the European session, but bounced back on modest UK employment figures and reclaimed the 1.2050 area.

Data-wise, the US Federal Reserve reported that Industrial Production for July rose by 0.6% MoM, underpinned by motor vehicles, propelled by easing supply chain disruptions. Before Wall Street opened, July’s Building House Permits and Housing Starts plummeted, indicating the ongoing deterioration in the housing market, spurred by higher mortgage rates.

Alongside that, Monday’s New York Fed Empire State Manufacturing Index for August dropped to the contractionary territory at -31.1 headline, less than 5 estimated.

The GBP/USD reacted to that, pushing through the 20-day EMA, extending its gains, and hitting a daily high at 1.2117.

On the UK side, employment data was better than estimated, with Claimant Count Change, falling by 10K, better than the 32K estimated, while the Unemployment Rate stood at 3.8%. Even though data shows signs of a robust labor market, the Bank of England is expected to lift rates at their next meeting by 50 bps, regardless of projecting that the UK’s economy might tap into a recession late in the year.

Elsewhere, the political spectrum has not been a driver of the British pound. However, the upcoming election in September might increase volatility in the GBP/USD, and depending on who is elected as Prime Minister; we would likely see the pair’s first reaction to that.

What to watch

On Wednesday, the UK economic calendar will feature the Retail Price Index and inflation figures in consumer and producer side sources. The US docket will reveal Retail Sales for July, alongside the FOMC’s last meeting minutes and Fed speeches.

GBP/USD Key Technical Levels