12.03.202400:50 Forex Analysis & Reviews: Tuesday will determine whether the pound will rise further. Overview of GBP/USD

The past week did not bring significant macro data from the United Kingdom. The only report we could highlight was the Construction PMI, which turned out to be slightly better than expected (47.9 points versus 49 points) but still below the expansion zone. Business optimism increased for the third time in the last four months and reached its highest level since January 2022.

The UK will present monthly data starting on Tuesday, with reports on employment, unemployment claims, wages, and earnings for February. Wage data may affect inflationary risk and the pricing of the Bank of England's interest rate. As for the labor market data, the main focus will be on the pace of average wage growth. The January report showed that nominal growth, while lower than the records seen in recent months, remains too strong.

The forecast for February is not very optimistic – wage growth is expected to remain at the previous level of 6.2%, and with bonuses included, it will decrease from 5.8% to 5.7%. This is too much to expect a sustained fall in inflation and therefore the BoE, no matter what wording it chooses to use, will wait for inflation to start falling. This is clearly a bullish scenario for the pound, so if the latest report does not show a decline, the pound will try to rise.

January reports on the UK's GDP, industrial production, services, construction activity, and international trade will be published on Wednesday. While all these indicators are obviously important, they do not have such a strong influence on the pound quotes as inflation and wage growth, so the trend will be set on Tuesday, with its own report on the labor market and inflation in the United States.

As shown by the latest CFTC report, the net long position on the pound increased by 1 billion to 4.6 billion during the reporting week. The bearish bias remains intact, and the price is also rising.

GBP/USD spent the last week by trading higher, testing the resistance at 1.2827, which we identified as the main target in the previous overview. The test was futile, as the pound failed to settle above this resistance. However, everything indicates that after a shallow pullback, we can expect another attempt, which will be more successful. A surprise in the form of Tuesday's US inflation report could hinder the pair's growth. If it turns out to be significantly higher than forecasted, the market will reassess its expectations for the Fed's interest rate, and the dollar will receive a powerful impetus. For now, this is the main threat that could prevent the pound from extending its upward movement towards the long-term target of 1.3139.