GBP/USD RISES BACK ABOVE 1.2400 AS USD INDEX CORRECTS, UK EMPLOYMENT EYED

The GBP/USD pair has witnessed some buying interest after dropping below the round-level support of 1.2400 in the Asian session. The Cable is showing some recovery, however, a wait-and-watch approach looks more feasible as the upside structure in US Dollar Index (DXY) has not been dented yet.

The Pound Sterling is expected to remain in action ahead of the release of the United Kingdom Employment data (Mar). Three-month Unemployment Rate is likely to remain steady at 3.7%. The Claimant Count Change is expected to decline by 11.8k, higher than the former release of 11.2K. Continuous addition of job seekers into the labor force indicates tight labor market conditions.

Apart from that, Average Earnings excluding bonuses are expected to soften to 6.2% vs. 6.5%. Investors should be aware of the fact that factors that have been fueling inflationary pressures in the UK regions are food inflation and higher employment bills due to severe labor shortage and decelerating labor cost index will provide some relief to the Bank of England (BoE) policymakers.

Meanwhile, S&P500 futures have registered some gains in the Asian session, portraying a recovery in the risk-on mood. The US Dollar Index (DXY) is facing hurdles in extending its recovery above 101.80. Also, demand for US government bonds has shown some recovery as investors are starting to digest one more rate hike expectation from the Federal Reserve (Fed). The 10-year US Treasury yields have eased to near 3.51%.

Contracting US Retail Sales released on Friday failed to ease chances of more rate hikes from the Fed. Scrutiny of the Retail Sales report showed that demand for costly items, which involves cost of financing remained weak, remained weak.