Pound shrugs as wage growth cools, US inflation next

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<li>UK wage growth eases</li>
<li>US inflation expected to fall to 3.3%</li>
</ul>
<p>The British pound has edged higher on Tuesday. In the European session, GBP/USD is trading at 122.91, up 0.10%.</p>
<p><strong>UK job growth improves, wage growth ease</strong></p>
<p>The UK labour market remains strong, despite high inflation and elevated interest rates. The unemployment rate was unchanged at 4.2% in the three months to September, just below the market consensus of 4.3%. Wage growth excluding bonuses eased to 7.7% y/y in the three months to September, after a 7.9% gain in the previous two periods. This was the first decline since January and is an encouraging sign that inflation is moving lower.</p>
<p>The UK will release inflation data on Wednesday, with headline inflation expected to fall to 4.8% y/y in October, down from 6.7%. Core inflation is projected to fall from 6.1% to 5.8%. If inflation falls as expected, it will be easier for the Bank of England to pause for a second straight time at the December meeting and that would put pressure on the pound.</p>
<p>The US releases its inflation report later today and the release could provide insights as to the Fed’s rate path. Headline inflation is expected to rise 3.3% y/y in October, compared to 3.7% in September. The core rate is expected to remain unchanged at 4.1% y/y.</p>
<p>If inflation falls, it will support the market’s expectation for rates cutes in mid-2024 and the US dollar could lose ground. Conversely, a hot inflation print would support the Fed’s stance of ‘higher for longer’ and would push off expectations of a rate cut to later in 2024, which would be bullish for the US dollar. The markets expect the Fed to pause at the December meeting, with just a 14% chance of a quarter-point hike, according to the CME Group’s FedWatch Tool.</p>
<p>.</p>
<p><strong>GBP/USD Technical</strong></p>
<ul>
<li>GBP/USD is testing resistance at 1.2281. Above, there is resistance at 1.2374</li>
<li>1.2175 and 1.2133 and are providing support</li>
</ul>
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