GBPUSD at the mercy of UK/US data

GBPUSD has been dragged back below the 1.220 psychological level.

The just-released UK wages data suggests that pay growth is easing, which may allow the Bank of England to hold back from proceeding with another rate hike.

• Average weekly earnings for the 3 months ending August decelerated to 8.1%, which fell short of the consensus estimate of 8.3%.
   
• Average earnings excluding bonuses for the same period grew by 7.8%, easing from the 7.9% record high posted in the month prior.

Following the data release earlier today (Tuesday, Oct 17th), markets pared their bets for a BOE rate hike by February 2024 from 68% down to just a 50-50 chance.

The downward revision on odds for a further BOE rate hike is heaping downward pressure on GBPUSD

From a technical perspective, this FX pair was resisted recently at its 21-day simple moving average (SMA).

Up next for GBPUSD: US retail sales and UK CPI

Today’s attention is on US retail sales, where economists expect a slowdown in consumer spending (the primary growth engine for the world's largest economy).

The September US retail sales figure is forecasted to come in at 0.3% month-on-month (September 2023 vs. August 2023), compared to August's 0.6% m/m growth.

This slowdown in retail spending would be in contrast to most key US economic indicators of late which have exceeded expectations, underscoring the resilience of the US economy and supporting demand for the dollar. Much of the US growth picture has been down to consumers staying in a tight labour market and spending.

A soft report this afternoon could see the US dollar soften, which should in turn help GBPUSD pare recent declines.

Then tomorrow (Wednesday, Oct 18th), the September UK consumer price index (CPI) is the other major risk event for GBP.

Here are the median forecasts among economists:

• CPI month-on-month (September 2023 vs. August 2023): 0.5%
  (higher than August's 0.3% m/m)
   
• CPI year-on-year (September 2023 vs. September 2022): 6.6%
  (slightly lower than August's 6.7% y/y)
   
• Core CPI (excluding food and fuel) year-on-year: 6.0%
  (lower than August's 6.2% y/y)
   
• Services CPI year-on-year: 6.8%
  (matching August's 6.8% y/y)

Potential Scenarios

• Evidence of still-stubborn UK inflation, coupled with a softer US retail sales figure, could invite GBPUSD bulls to retest its 21-day SMA for resistance.
  
  Further north, stronger resistance may arrive around the 1.230 region where also lies a longer-term Fibonacci level.
  
   
• Lower-than-expected UK inflation data, especially for the core and services CPIs, along with signs of still-resilient US consumer spending, could in turn drag GBPUSD below the 1.2130 support zone.
  
  Further south, stronger support may arrive around 1.20372 which is the Oct 4th intraday low; also the lowest point yet in GBPUSD's long-term bear channel after positing highs above 1.31 in mid-July.