On Wednesday, the British pound (GBP) dropped to approximately 1.3490 against the US dollar (USD) in European trading. This movement reflects some pressure as the dollar gains strength ahead of significant US economic data due for release later in the North American session. This includes the December ADP employment changes, the ISM Services Purchasing Managers Index (PMI), and the November JOLTS job statistics.
As of now, the U.S. Dollar Index (DXY), which reflects the dollar’s value against six major currencies, is edging close to 98.70.
Market watchers are paying full attention to the employment figures from the U.S., which might shed light on the Federal Reserve’s upcoming monetary policy direction.
Economists are estimating that the U.S. ADP report will reveal that private employers added 47,000 jobs after the previous month’s layoffs of 32,000. Meanwhile, JOLTS figures are expected to show about 7.64 million job openings, slightly below October’s tally of 7.67 million.
If improvements in the U.S. job market do materialize, it could diminish expectations for immediate rate cuts by the Fed, although poor figures would likely have the opposite effect.
The US ISM Services PMI is anticipated to be at 52.3, a decrease from November’s 52.6, signaling that service sector activity still grows, albeit at a slower rate.
Weak UK labor market may lead to financial decline for BOE
- The sterling has maintained a fairly stable position against major currencies during European trading hours. Investors seem to be moving past concerns linked to the recent U.S. military action in Venezuela.
- The sentiment in the markets shifted to a more risk-averse stance earlier this week following the U.S. attack on Venezuela and the subsequent detention of President Nicolás Maduro on drug trafficking charges.
- Domestically, the UK economic outlook appears positive. Thus, market sentiment will likely be the primary influencer for GBP.
- Regarding monetary policy, it’s anticipated that the Bank of England (BOE) won’t aggressively ease its stance this year, given that inflation remains significantly above the central bank’s 2% target. However, the weak labor market conditions suggest a downward trend in monetary policy going forward, particularly since the UK unemployment rate rose to 5.1% in the three months leading to October—the highest level since March 2021.
- A key event for the GBP/USD pair is the non-farm payrolls (NFP) data set for release on Friday. Investors are keen to analyze these U.S. employment figures for insights into the labor market’s current state. The Fed has reduced rates by 25 basis points three times in 2025 in response to weak job market conditions, adjusting rates to a range of 3.50% to 3.75%.
Technical analysis: Potential for further increases if GBP/USD stays above 1.3500
Currently, GBP/USD sits at 1.3495. The 20-day exponential moving average (EMA) has increased and is currently at 1.3445, indicating a short-term bullish trend. Prices are above this EMA, suggesting a developing upward trend.
The 14-day Relative Strength Index (RSI) stands at 60, showing steady momentum without hitting overbought territory.
Analyzing the Fibonacci retracement from a high of 1.3791 to a low of 1.3017 reveals significant support and resistance levels. The 61.8% Fibonacci retracement at 1.3495 serves as key support. A strong move above this level could lead to the 78.6% Fibonacci retracement at 1.3625. Conversely, if prices drop below 1.3495, the rising EMA at 1.3445 might signal further declines, allowing for some consolidation.
(This technical analysis was generated using AI tools.)
(This article was updated on January 7 at 11:00 GMT to reflect last-minute consensus changes. December ADP figures are now indicated as 47,000.)
