GBP/USD turns south as markets discount a less aggressive BoE, USD strength

• GBP/USD declined towards 1.2490 and saw losses in five out of the last six days.
• UK labour market data came in soft.
• British yields are diving as markets discount a less aggressive BoE.

In Tuesday’s session, the GBP/USD fell below the 1.2500 area near 1.2490, seeing nearly 0.14% losses. The main downward driver of the Cable is investors placing dovish bets on the Bank of England (BoE) and the Greenback recovering ground, and markets remain cautious ahead of inflation figures from the US from August.

The UK reported weak labour market data on Wednesday’s European session. The Unemployment rate in the three months ending in July rose to 4.3%, as expected, while the Employment Change figure declined by 207,000, higher than the 185,000 expected in July. In addition, wage inflation measured by the Average Earnings in the three months up to July rose to 8.5% YoY, vs. the 8.2% expected, and while inflation rose as well as unemployment, it is not good news for the UK’s economy.

According to the World Interest Rate Probabilities tool (WIRP), markets are now discounting higher odds of a hike in the September and February meetings, which would lift the target rate to 5.75%.

On the other hand, the US’s calendar had nothing relevant to offer that its drivers on the session where investors seeking refuge in the Greenback ahead of the release of the Consumer Price Index (CPI) data from the US from August on Wednesday. The headline and core figure are expected to have accelerated on a monthly basis, and hot reading may boost hawkish bets on the Federal Reserve (Fed), which could open the upside for the USD.

GBP/USD Levels to watch 

The daily chart analysis indicates a bearish outlook for the GBP/USD in the short term. The Relative Strength Index (RSI) is below its midline in negative territory, with a negative slope, aligning with the negative signal from the Moving Average Convergence Divergence (MACD), which displays red bars, reinforcing the strong bearish sentiment. Additionally, the pair is below the 20 and 100-day Simple Moving Averages (SMAs) but above the 200-day SMA, suggesting that despite the recent bearish sentiment, the bulls are still resilient, holding some momentum.

That being said, if the Cable loses the 200-day SMA at 1.2428, it would exacerbate the bearish momentum with the next targets at 1.2400 and 1.23800. On the upside, resistances line up at 1.2500, 1.2540 and 1.2570. 

GBP/USD Daily Chart