GBP/USD Price Forecast: Labour Shock Puts 1.3500 Support Back in Play

GBP/USD – labour shock, disinflation story and a fragile 1.3600

GBP/USD price action and where the pair actually trades

GBP/USD is trading around the 1.3600 area after flushing to roughly 1.3550–1.3552 on the jobs release and then recovering part of the move. Price is sitting under a tight cluster of short-term reference points: intraday and 20-day averages around 1.3620–1.3635, and below former horizontal support at 1.3590–1.3592 that now acts as first resistance. The market has clearly shifted from an impulsive rally to a corrective phase: the rejection above 1.3700, the failure to sustain a daily close over the 20-day average, and the break back under 1.36 all point to sellers regaining control unless the pair can re-establish itself above the mid-1.36s quickly.

UK labour market – 5.2% unemployment and a 28.6K claimant spike

The latest labour figures are the core driver of the move. The ILO unemployment rate increased to 5.2% versus 5.1% expected, marking the highest reading in roughly five years. Job creation slowed to 52K from 82K, and the claimant count jumped by 28.6K in January after a marginal 2.7K increase previously. That combination – rising joblessness, weaker hiring and a sharp move in claims – is consistent with a labour market that is genuinely losing momentum, not just statistical noise. For GBP/USD, that translates into a clear growth hit at the same time as the market is already positioned for easier policy from the Bank of England, which weakens the Pound’s support from the macro side.

Wage growth at 4.2% – progress on pay but still too high for comfort

Average earnings ex-bonus slowed to 4.2% year-on-year from 4.6% (revised down), and the measure including bonuses also eased to 4.2% from 4.6%. That confirms a disinflationary trend in pay but still leaves wages running well above levels compatible with a clean 2% inflation target. Households see some relief as real income pressure eases, but for the Bank of England this is still “too hot to declare victory”. For GBP/USD, wage growth at 4.2% in an environment of 5.2% unemployment tells you policy can tilt more dovish without any claim that inflation is fully solved, keeping the Pound trapped between weaker growth and only gradual relief on prices.

Inflation path – headline near 3.0%, core around 3.1%, services still above 4%

The next catalyst is UK CPI. Markets look for headline inflation to fall toward 3.0%, core CPI to edge down to about 3.1%, and services inflation to slip toward 4.3% from 4.5%. If those numbers land as expected, the disinflation story remains intact but incomplete: inflation is moving in the right direction but still runs comfortably above target. For GBP/USD, this matters because current pricing assumes that the disinflation trend continues broadly uninterrupted. A softer print reinforces the case for cuts and caps rallies; a stickier outcome, especially in services or core, would force a partial repricing of the Bank of England curve and trigger a short squeeze higher in the pair.

BoE at 3.75% – a 5–4 split and a curve that already prices multiple cuts

The Bank of England left the bank rate at 3.75% in a narrow 5–4 vote, highlighting how divided the committee already is. Despite that, markets now price roughly a 70–75% probability of a 25 bp cut at the 19 March meeting, a full cut by June, and another 25 bp move largely priced by year-end, implying around 50 bp of easing in 2026. That is not a hawkish stance. With this much easing already discounted, weak labour data and slower wages no longer create new downside for GBP; they just validate what is priced. The asymmetry is that stronger-than-expected wages or stickier services inflation can force a rethink and lift GBP/USD faster than additional soft data can push it much lower on its own.

USD side – a steady Dollar with quiet safe-haven support

On the USD leg, the story is straightforward: the Dollar is supported but not on a runaway trend. Global risk sentiment is dealing with equity volatility around AI, trade and tariff noise, and US data that is softening in some pockets but not collapsing. Markets still expect the Federal Reserve to cut rates later in 2026, but the pace and timing remain data-dependent. That backdrop means GBP/USD is being driven mainly by UK factors right now. The Dollar’s role is to provide a solid floor rather than an aggressive bid, but as long as US growth holds up better than the UK and the Dollar retains a yield and safety premium, rallies in GBP/USD are more likely to be sold into than extended.

Technical structure in GBP/USD – from trend to range with a bearish lean

Technically, GBP/USD has transitioned from a strong advance into a consolidation that now leans lower. The rally stalled and reversed above 1.3700, failing to challenge the January swing high around 1.3870. Since then, price has been compressing into a loose triangle, with lower highs below 1.3700–1.3749 and higher lows above 1.3500. The latest leg lower from the 1.37 region has pushed the pair back into the lower half of this structure. On the daily chart, GBP/USD is trading below the 20-day moving average in the 1.3630–1.3635 area, a typical sign that upside momentum has faded. The RSI (14) is sliding through the low-40s, consistent with a market in correction rather than a fresh impulse lower, while MACD has rolled under its signal line and is drifting down – both pointing to a market where sellers have the advantage, but without reaching oversold conditions yet.

Key levels – 1.3700 caps the top, 1.3550 and 1.3500 protect the bottom

Near term, resistance sits first at 1.3590–1.3592, the broken support area that now acts as a pivot. Above that, 1.3650–1.3654 lines up with recent swing highs and the underside of the short-term downtrend. The broader cap remains 1.3700, which has repeatedly repelled rallies; above that, 1.3749 and the 1.3870 January high are the next upside markers. On the downside, initial support sits around 1.3560, with the intraday low and key pivot region at 1.3550–1.3552. Below that, the 1.3508 area and the 1.3459–1.3440 band – roughly where the 200-day moving average tracks – form the next major demand zone. If those levels give way decisively, the next logical target is the 61.8% retracement of the November–January advance near 1.3340, which would effectively unwind the entire prior rally.

Event path – labour shock now, inflation and BoE timing next

The sequence is clear. The labour report has already weakened the Pound by exposing a softer jobs market: 5.2% unemployment, 52K jobs added, 28.6K new claimants, 4.2% wage growth. The next step is CPI. If headline and core land around 3.0–3.1% and services drop toward 4.3%, disinflation is confirmed, the March cut remains heavily priced, and GBP/USD likely struggles to clear the 1.3650–1.3700 band, with sellers using strength to build shorts. If inflation proves stickier, especially in services or core, markets will have to trim the currently dovish path for the Bank of England, and GBP/USD can spike higher as positions are forced out above 1.3650 and into the 1.37–1.3750 zone. Beyond UK data, the focus swings back to the US with core PCE, income/spending and US GDP, which will decide whether the Dollar keeps its current support or fades and allows a broader rebound in risk-sensitive FX.

Stance on GBP/USD – Sell bias with controlled respect for short-squeeze risk

Given the mix of weak UK labour data, slowing but still elevated wage growth at 4.2%, unemployment at 5.2%, a claimant count jump of 28.6K, and a market that already prices multiple BoE cuts from 3.75%, the bias in GBP/USD skew remains to the downside. Technically, price is below the key 1.3590–1.3650 resistance band, momentum indicators are rolling over, and the pair is pressing supports in the mid-1.35s rather than threatening the tops of the recent range. On that basis, the clear read is bearish / Sell bias, targeting the 1.3550, 1.3508 and 1.3459–1.3440 areas, with an extension toward 1.3340 if UK data continues to deteriorate and US numbers hold up. The main risk to that stance is a data-driven squeeze higher on firmer UK CPI or wages that force the market to dial back BoE easing expectations; there, 1.3650–1.3700 is the key decision zone.

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