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GBP/USD Stability Hinges on Upcoming UK, US Data

"Stability Hinges"
“Stability Hinges”

The GBP/USD pair retains a level above the 1.2800 mark as traders await the release of UK labor market data and US Consumer Price Index (CPI) statistics; a key set of information which could considerably change the valuation of the pair in the foreign exchange market. Both UK’s employment numbers and US’s inflation rate could present risks and generate possible volatility for the GBP/USD pair.

There is growing uncertainty over whether the UK can meet its 2% inflation goal. Catherine Mann, a Bank of England (BoE) official suggests that achieving stable inflation is quite some distance off, with ongoing challenges making it difficult for the UK to reach the targeted 2% inflation rate. This casts a shadow over the British Pound (GBP), further dampening outlooks.

UBS Global Research forecasts the BoE will introduce interest rate cuts, with a 25 basis point cut predicted for August. The suggestion is, this change is brought about by the slower than expected economic recovery in the UK, as a result of Covid-19. It implies the Bank of England will likely postpone until later in the year to make any significant changes. There also might be a further cut of 15 basis points in November, thereby lower the interest rate further in an attempt to stimulate the economy.

Traders are exhibiting caution due to awaited UK labor market data and US inflation statistics. This has caused an increase in the attractiveness of safe-haven assets like the USD. Market participants are in a wait-and-see mode, making more measured moves in the financial markets. As the UK labor market data is due for release, investors are pondering whether the numbers will follow the forecasted trend or provide unexpected figures.

The forthcoming CPI report is uncertain as a surprising increase could upset expectations of a BoE rate decrease, unintentionally strengthening the USD and potentially hampering the GBP/USD pair. This presents a great deal of tension among investors and policymakers, prompting them to reassess viable strategies, especially if the data shows a significant inflation surge.

Investors will monitor UK labor market data closely, focusing on employment change, claimant count change, and average earnings. Concurrently, the US CPI inflation data for February will also be under scrutiny. The dispersion of these statistics holds the potential to induce market fluctuation and could possibly set a distinct trend for the GBP/USD pair.

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