GBP/USD leaps back above 1.3400, hits session highs as easing Q4 wage pressures dent dollar

• GBP/USD has jumped back above 1.3400 in wake of the latest US data dump.
• The dollar has weakened amid profit-taking after data revealed an easing of US wage pressures in Q4.

In wake of the latest US data dump that contained promising signs of easing US wage pressures last quarter, the dollar has seen broad weakness which has helped to propel GBP/USD back above the 1.3400 level. Indeed, the pair recently high session highs in the 1.3420s, where it now trades with modest gains of about 0.3% on the session. Technicians may now look for cable to test resistance in the form of the earlier weekly lows in the 1.3430-50 area, where some swing traders may be tempted to reload short positions.

Despite some profit-taking in wake of the latest US data dump that saw Core PCE and Personal Income/Spending figures print roughly in line with expectations but surprising weakness in Q4 Employment Cost inflation, many buck bulls will remain confident. Indeed, the broader Dollar Index (DXY) is still up about 1.6% on the week (and GBP/USD is down about 1.0% on the week), spurred by Fed tightening bets after Fed Chair Jerome Powell’s hawkish post-policy announcement remarks. As the Fed leaves itself plenty of optionality to tighten at a faster, or slower pace, dependent upon the data, there is plenty of space for further data surprises next week to power further Usd upside.

That suggests downside risks for G10/USD majors, including GBP/USD in the week ahead, with the most important data releases to scrutinise the January ISM surveys and official labour market report. As some strategists talk about a return to GBP/USD to December’s sub-1.3200 lows, note that next week’s BoE meeting may offer some upside risk, given the bank is likely to implement another rate hike and layout quantitative tightening plans.

At the very least, even if the broad dollar rally does power on and drives GBP/USD lower, there is a distinct chance that sterling’s losses against the buck are limited compared to other G10 currencies. That has been the case this week, with GBP down around 1.0% versus the buck, while CAD, JPY and EUR are 1.4-1.6% lower and CHF, NZD and AUD all more than 2.0% lower.