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GBP/USD Soars on Strong UK Data; Weak US Dollar

GBP/USD Soars on Strong UK Data; Weak US Dollar

Nick Cawley, Strategist

Sterling Talking Points

- UK wages pick-up a touch, employment soars sending GBP/USD over 1.4100.

- US dollar continues to slump on renewed trade worries.

Check out our new Trading Guides: they’re free and have been updated for the first quarter of 2018

Strong UK Data Sends GBP/USD to a Fresh Multi-Month High

UK weekly earnings edged higher, data showed on Wednesday, while UK employment hit a new record high, according to figures from the Office for National Statistics (ONS). UK weekly earnings, ex-bonus, rose to 2.4% in November from a prior level of 2.3%, while the 3m/3m employment rate smashed predictions of a 10k drop to show 102k new positions created. The unemployment rate remained at a four-decade low of 4.3%. According to the ONS, the number of people in work reached a new record high.

Last week data from the Office for National Statistics (ONS) showed annual UK inflation falling in December to 3.0% from 3.1%, the first decline in six months, primarily due to a fall in air fares and the cost of toys and games. The narrowing of the gap between inflation and weekly earnings will cheer BOE governor Mark Carney and push forward rate hike expectations, boosting GBP.

Sterling traders will now look ahead to the first look at UK Q4 GDP - released on Friday - to see if the UK economy has benefitted from the recent global growth surge. Any pick-up in growth from a predicted rate of 0.4% q/q will underpin the GBP/USD rally further.

DailyFX will be covering the UK Q4 GDP Release from 09:15 GMT onwards on January 26.

A Weak US Dollar Underpins Recent GBP/USD Rally

GBP/USD is having a good run of late with a strong GBP and a weak USD sending the pair back to levels last seen in June 2016. A combination of a weak US dollar complex, driven lower by fears that US President Trump may be sparking a new round of trade wars. The US recently imposed trade tariffs on solar panels and washing machines and is currently in NAFTA negotiations with Canada.

GBPUSD Price Chart Weekly Timeframe (April, 2017 – January 24, 2018)

GBP/USD Soars on Strong UK Data; Weak US Dollar

Chart by IG

GBPUSD Client Positioning Data Show Mixed Trading Signals

IG Client Sentiment datashow 32.5% of traders are net-long GBPUSD with the ratio of traders short to long at 2.08 to 1. In fact, traders have remained net-short since Dec 28 when GBPUSD traded near 1.33553; price has moved 4.8% higher since then.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBPUSD trading bias.

The Traits of Successful Traders and how to find the Number One Mistake Traders Make are just two of the topics covered in ourFree Trading Guides.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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