UK Employment, CPI Could Break Cable Trend

After stronger-than-expected UK GDP growth in November failed to boost the pound, traders look forward to UK job market data and inflation numbers for confirmation of the BOE's policy outlook.

The Key Upcoming Events

• UK November joblessness is expected to stay steady at 5.1%, with the December claimant count around the same at 20.5K.
• Inflation in Britain is expected to continue to ease to 3.1% from 3.2%, but would have to accelerate to meet Bailey's projections of a return to target by May.
• Markets are barely pricing in two rate cuts this year, unchanged from before the upbeat GDP figures published last week.

Data Expected to Keep Softening

The pound continued its downward trend last week, even after the UK economy grew faster than anticipated in the latest monthly GDP data. At 0.3% instead of the 0.1% forecast, Britain's economy grew at the fastest pace since June, as economists pointed out that businesses were not as worried about the Autumn Budget as initially feared. Although cable briefly bounced higher, markets continued to price in two rate cuts this year. The rebound in the economy might restore some confidence in the UK's ability to meet its payments, but the lack of market reaction to the data suggests those fears might have been a bit overblown as well.

The focus now turns to the main data the BOE has been using in its policy deliberations: the jobs market and the inflation rate. Projections from Britain's central bank suggest that inflation has already peaked, and doves on the MPC have expressed concern about growing slack in the economy. Although BOE Governor Andrew Bailey said he expects inflation to fall back to its target by April or May, it remains the highest among G7 countries. Traders will likely be looking for sustained movement in that direction before pricing in more rate cuts. There is still a divergence in opinion between the futures market and economists, with traders betting on almost two rate cuts while economists say there will be as many as three. The upcoming data could clarify that disagreement and drive the cable in the process.

Inflation Expected to Ease

First up is employment data, to be released on Tuesday. The December claimant count is projected to remain steady at 20.5K, compared to 20.1K in November. Remember that the count is the number of people seeking unemployment benefits, so a lower number is positive for the economy. At the same time, the November unemployment rate is projected to remain unchanged at 5.1%. Last week, BOE member Alan Taylor made the case for expecting inflation to keep falling, arguing that lower energy prices, measures in the Budget, and trade diversion caused by US tariffs would lower consumer prices. The consensus is for both the headline and core UK CPI rates of November to decline to 3.1% from 3.2% prior, still well above the BOE's 2.0% target. If inflation comes in below expectations, markets could move forward their projections for the first rate cut of the year, currently set for the June meeting. However, the upbeat GDP numbers could mean that inflation exceeds forecasts and delays expectations for the next rate reduction.

Cable Bounces Off Lower VWAP Ahead of Data

The pound has been on the decline since peaking at 1.3566, breaking trendline support and testing the lower VWAP, which has produced a bounce at 1.3360. While prices remain below 1.3400 and the middle VWAP resistance at 1.3448, bias is to the downside, with a breakdown exposing 1.3300. If UK data is positive, GBPUSD bulls could attempt to extend gains to 1.3500, paving the way for a new 2026 peak.

Source: SpreadEX | GBPUSD, Daily Chart