On Monday, GBP/USD capitalized on the overall weakness of the US Dollar (USD) and surged to its highest level in a month, surpassing 1.2590. However, the pair now faces resistance at 1.2600, and the short-term technical outlook suggests the possibility of a downward correction before the next upward move.
The positive market sentiment at the start of the week has prevented the safe-haven USD from remaining resilient against its main rivals, thereby supporting GBP/USD in maintaining a positive stance. The UK's FTSE 100 Index rose by 0.3%, while US stock index futures showed gains ranging from 0.1% to 0.3% during the European session.
Earlier in the day, hawkish comments from Bank of England (BoE) policymaker Jonathan Haskel further bolstered the strength of Pound Sterling. Haskel expressed his view that it is important to counter the risks of inflation momentum and did not rule out the possibility of further interest rate increases in the future, as stated in an article published in The Scotsman newspaper.
On Tuesday, the UK's Office for National Statistics is set to release labor market data, including wage inflation figures. Average Earnings Excluding Bonus, a measure of annual wage inflation, is expected to rise to 6.9% in April from 6.7% in March. Currently, the markets have fully priced in a 25 basis points (bps) rate hike by the Bank of England at the upcoming policy meeting on June 22. Therefore, if wage inflation comes in weaker than expected, it could pose challenges for Pound Sterling to outperform other currencies. Conversely, a stronger-than-forecast reading may have a short-lived positive impact on the currency.
The GBP/USD pair may experience significant volatility due to the release of May inflation data from the US and Bank of England Governor Andrew Bailey's speech during the Lords Economic Affairs Committee hearing on Tuesday. From a technical analysis perspective, the pair exhibits a Gartley pattern, where there was a reversal in price followed by a recovery. This suggests a bearish setup is still plausible.
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