Sterling drops ahead of UK labour data

The GBPUSD currency pair broke its five-day winning streak, trading around 1.2600 during Tuesday’s Asian session, as traders are awaiting UK employment data later in the day.

The Claimant Count Change for January is expected to rise to 10,000 new unemployment benefit claimants. The ILO Unemployment Rate is also forecast to increase to 4.5% from 4.4%.

Prime Minister Keir Starmer stated on Monday that any peace deal for Ukraine would require a “US backstop” to prevent Russia from attacking again, according to Reuters.

Starmer emphasised that Ukraine’s future is a crucial issue for Europe, and it is urgent for Europe to share the responsibility in addressing the situation.

The downside risk for GBPUSD could be linked to the strengthening US Dollar as Treasury yields rise.

The DXY Dollar Index, which tracks the USD against six major currencies, edges higher after losing ground in the previous three sessions, trading around 106.90. At the same time, 2-year and 10-year US Treasury yields stand at 4.27% and 4.51%, respectively.

Federal Reserve Governor Michelle Bowman remarked on Monday that rising asset prices may have slowed the Fed’s progress on inflation. While she expects inflation to decline, she warned that upside risks persist and stressed the need for more certainty before considering rate cuts.

Meanwhile, Fed Governor Christopher Waller acknowledged on Monday that while inflation has improved, progress has been “excruciatingly” slow. Waller emphasised the importance of not letting policy uncertainty hinder data-driven decisions.

(Source: OANDA)