• British pay growth grew more than forecast in the 3 months to October.

• Markets expect only two BoE rate cuts by the end of 2025. 

• US business activity in the services sector surged in December.

The GBP/USD price analysis paints a bright future for the pound as UK labor market data shows resilience in the face of high interest rates. Meanwhile, market participants remained cautious ahead of policy meetings in the UK and the US this week.

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Data on Tuesday revealed that British pay growth grew more than forecast in the 3 months to October. Notably, average weekly earnings minus bonuses jumped to 5.2%, beating estimates of 5.0%. The upbeat figures further clouded the outlook for rate cuts in the UK. After the report, markets expected only two rate cuts by the end of 2025. As a result, the pound surged, recovering from last week’s lows. 

Although the labor market showed resilience, data last week revealed a contraction in the economy. Markets and policymakers remain cautious about the outlook for monetary policy as they await the impact of the new UK government budget. 

Meanwhile, traders expect the Bank of England to keep rates unchanged this week. However, they will focus on messaging about the future. On the other hand, the Fed will also hold its meeting and likely cut rates by 25-bps. However, data in the previous session revealed a surge in business activity in the services sector, showing continued economic resilience. At the same time, market participants have slashed bets for Fed rate cuts next year.

GBP/USD key events today

• US core retail sales m/m
• US retail sales m/m

GBP/USD technical price analysis: Bulls challenge the 30-SMA resistance

On the technical side, the GBP/USD price has pulled back to retest the 30-SMA as resistance after recently reversing to the downside. Sentiment shifted to bearish after the price broke below its bullish trendline. However, the decline paused after reaching the 0.618 Fib retracement level. Here, bulls resurfaced to challenge the new direction. 

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Bulls will take back control and aim for the 1.2800 resistance level if the price breaks above the SMA. Such an outcome would also lead to a continuation of the previous bullish trend. On the other hand, if the SMA holds firm, GBP/USD will bounce lower to retest the 0.618 Fib level. A break below this level would make a new low, continuing the downtrend.

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