Pound Sterling gains on upbeat UK employment data

• The Pound Sterling outperforms most of its peers on upbeat UK employment data for three months ending February.
• Investors await the UK CPI data for March, which will be released on Wednesday.
• US President Trump will likely announce a temporary suspension of automobile tariffs.

The Pound Sterling (GBP) edges higher against its major peers, except antipodeans, on Tuesday after the release of the United Kingdom (UK) labor market data for three months ending February. The Office for National Statistics (ONS) reported that the economy added 206K fresh workers, significantly higher than the 144K recorded in three months ending January.

The agency reported that the ILO Unemployment Rate came in line with estimates and the prior release of 4.4%. The scenario of upbeat employment data is favorable for the British currency. However, financial market participants expect that employers could slow down their hiring process in the face of an increase in contributions to social security schemes starting in April. 

In the Autumn budget, UK Chancellor of the Exchequer Rache Reeves raised employers' contribution to National Insurance (NI) from 13.8% to 15%.

Meanwhile, Average Earnings Excluding Bonuses, a key measure of wage growth, grew at a slightly slower pace of 5.9% compared to estimates of 6%. In three months ending January, the wage growth measure rose by 5.8%, downwardly revised from 5.9%. Average Earnings Including Bonuses rose steadily by 5.6% but slower than the expectations of 5.7%. 

Mixed Average Earnings data is unlikely to change market expectations for the Bank of England's (BoE) monetary policy outlook significantly, which indicates that the central bank would cut interest rates in the May policy meeting. 

For fresh cues on the interest rate outlook, investors will focus on the UK Consumer Price Index (CPI) data for March, which will be released on Wednesday. Economists expect the UK core CPI - which excludes volatile food and energy prices - to have grown at a steady pace of 3.5%.

Daily digest market movers: Pound Sterling refreshes six-month high against US Dollar

• The Pound Sterling posts a fresh six-month high near 1.3220 during European trading hours on Tuesday. The GBP/USD pair trades firmly as the US Dollar remains under pressure, with investors losing confidence in its structural attractiveness due to back-and-forth decisions on trade policies by United States (US) President Donald Trump. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades cautiously slightly above the three-year low of 99.00. 
• The ever-shifting tariff headlines from US President Trump, from the 90-day pause on reciprocal tariffs on all of its trading partners, except China, to signals of temporary suspension on additional levies on imported vehicles, have forced traders to reassess the safe-haven appeal of the US Dollar.
• On Monday, Donald Trump signaled that he is exploring temporary exemptions for tariffs on imported vehicles and related parts as domestic Original Equipment Manufacturers (OEMs) need more time to set up manufacturing facilities at home. "I'm looking at something to help car companies with it," Trump said and added, "They're switching to parts that were made in Canada, Mexico and other places, and they need a little bit of time, because they're going to make them here," Bloomberg reported.
• Meanwhile, economic risks prompted by Trump's policies have stemmed the need for interest rate cuts from the Federal Reserve (Fed). On Monday, Fed Governor Christopher Waller backed monetary policy easing in the scenario of an economic recession despite inflationary pressures remaining escalated. "I expect the risk of recession would outweigh the risk of escalating inflation, especially if the effects of tariffs in raising inflation are expected to be short-lived," Waller said.

Technical Analysis: Pound Sterling extends winning spree

The Pound Sterling extends its winning streak for the sixth trading day and jumps above 1.3200 against the US Dollar (USD) at the time of writing on Tuesday. The near-term outlook of the pair is upbeat as all short-to-long Exponential Moving Averages (EMAs) are sloping higher below the current price. 

The 14-day Relative Strength Index (RSI) demonstrates a V-shape recovery from 40.00 to 65.00, suggesting a strong bullish momentum.

Looking down, the 61.8% Fibonacci retracement plotted from late September high to mid-January low, near 1.2927, will act as a key support zone for the pair. On the upside, the three-year high of 1.3430 will act as a key resistance zone.