The British pound (GBP) experienced a significant rise, reaching nearly 1.3490 against the US dollar during European trading on Tuesday. This growth followed a trend that began on Monday, fueled by the escalating trade tensions between the United States (US) and the European Union (EU) over Greenland, which has prompted a ‘Sell America’ sentiment.
As of now, the US Dollar Index (DXY), which measures the dollar’s strength against six major currencies, has decreased by 0.54% to approximately 98.50.
Over the weekend, President Donald Trump stated he would impose 10% tariffs on several EU nations and the United Kingdom (UK) in response to their opposition to the US’s plans to buy Greenland, hinting at more potential increases in tariffs.
This move has drawn criticism from various EU member states and UK Prime Minister Keir Starmer, who condemned Trump’s approach as reckless.
Market analysts have cautioned that a prolonged standoff between the US and EU could erode confidence in Trump’s leadership. This might lead to strained relations with other major economies and a long-term downturn in the attractiveness of US investments.
Daily Digest Market Movement: GBP rises ahead of UK CPI data
- The pound surged against major currencies on Tuesday after UK employment figures were released for the three months leading to November. Although a drop in the unemployment rate to 5% was anticipated, it remained unchanged at 5.1%, based on the labor market report.
- The report revealed an addition of 82,000 new jobs, following a contraction of 17,000 jobs in the three months to October.
- Average earnings data, a critical indicator of wage growth, showed a slower increase in the quarter ending in November. Profits excluding bonuses grew at an annualized rate of 4.5%, which, although expected, was less than the previous rate of 4.6%. On the other hand, wage growth that includes bonuses rose by 4.7%, edging out the 4.6% estimate, but down from the revised 4.8% from previous reports.
- The signs of declining wage growth and stable unemployment rates may lead to expectations for imminent interest rate cuts from the Bank of England (BoE).
- Investors are looking forward to the December Consumer Price Index (CPI) data set to be released on Wednesday, hoping it provides further insights into the UK’s interest rate outlook. This report is anticipated to show that price pressures remain broadly steady.
- Last week, a member of the BoE Monetary Policy Committee, Alan Taylor, indicated that inflation might reset to the central bank’s 2% target by mid-2026, sooner than initially expected, and suggested that interest rates could stabilize at neutral sooner rather than later. The Bank of England previously stated that monetary policy would follow a “moderate downward trajectory.”
- In the US, traders eagerly await the upcoming release of the US Personal Consumption Expenditure Price Index (PCE) data for October and November on Thursday, crucial for the interest rate outlook, as this is the Federal Reserve’s preferred inflation measure.
- According to the CME FedWatch tool, confidence among traders is building that the Fed will keep interest rates steady in its upcoming monetary policy meeting.
Technical analysis: GBP/USD has further upside potential above 1.3500
Currently, GBP/USD is trading around 1.3480, remaining above the 20-day exponential moving average (EMA) of 1.3433, which suggests a short-term positive bias. The 20-day EMA is flat, indicating some consolidation following a recent rally.
The 14-day Relative Strength Index (RSI) is at 57, showing balanced momentum with a slight upward slope.
The resistance level can be observed at the 61.8% Fibonacci retracement at 1.3491 when measuring from the high of 1.3789 to the low of 1.3009. If daily closing prices exceed this level, it could set off a rally towards the 78.6% retracement at 1.3622. However, if there’s a pullback, a close below the 20-day EMA at 1.3433 could alter the sentiment and lead to a deeper correction.
(The technical analysis in this story was written with the help of AI tools.)
