GBP/USD climbs back above $1.37 as UK jobs report beats expectations

The pound struck higher during yesterday’s trading session in response to some better-than-expected employment figures from the UK.
 
Sterling appears to be consolidating these gains so far this morning with GBP/EUR stable at €1.1307 and GBP/USD flat at $1.3744. GBP/CAD is buoyed at C$1.7487, while GBP/AUD and GBP/NZD tick up to AU$1.7760 and NZ$1.9010, respectively.
 
Coming up, the focus today will be on the Federal Reserve as it concludes its first policy meeting of the year.
 

What’s been happening?

The pound rallied on Tuesday as the UK’s latest jobs figures printed above expectations.
 
While the headline figures revealed that domestic unemployment rose from 4.9% to 5% in November, this beat forecasts that the jobless rate could have climbed as high as 5.1% amidst the UK’s second national lockdown.
 
However, it was the accompanying earnings figures that appeared to be most supportive of Sterling, with GBP investors cheering as wage growth rocketed up from 2.8% to 3.6% over the same period.
 
The US dollar, meanwhile, experienced some selling pressure yesterday, with the appeal of the safe-haven ‘Greenback’ being undermined by an improvement in market sentiment after the International Monetary Fund (IMF) revised its 2021 global growth forecast up from 5.2% to 5.5%.
 
This slump in USD exchange rates offered some support to the euro thanks to the negative correlation between the pairing, but the single currency struggled to translate this into gains against the rest of its peers as Italian Prime Minister Giuseppe Conte’s ‘tactical’ resignation undermined EUR sentiment.
 

What’s coming up?

In the spotlight today we have the Federal Reserve’s first interest rate decision of 2021.
 
While no policy changes are expected from the Fed this month, we expect the bank to be fairly upbeat in its outlook for the US economy, especially in light of Biden’s push for a massive stimulus package.
 
Alongside Fed Chair Jerome Powell’s likely reiteration of the bank’s commitment to doing all it can to support the US economy through its accommodative monetary policy, we are likely to see this result in another pullback in the US dollar.
 
In the meantime, the publication of Germany’s latest consumer confidence index earlier this morning may leave the euro on the back foot today after February’s index plunged to an eight-month low.
 
In the UK, the focus is likely to return to the country’s fight against the coronavirus, potentially leading to some weakness if concerns over an extension to the lockdown offset the continued success of the government’s vaccination programme.