GBP/USD extends losses to sub-1.3000 area, UK unemployment rate in focus

• GBP/USD registers minor losses amid Brexit pessimism.
• UK’s Brexit negotiator shares the same view as PM Boris Johnson, increases the risks of hard departure.
• UK employment statistics will be the key to clarify on the BOE’s bearish bias.

GBP/USD stays mildly negative around 1.2998 while heading into the London open on Tuesday. The pair recently dropped after the UK’s Brexit negotiator David Frost propelled the odds of fierce trade negotiations between the European Union (EU) and Britain during the next month, also because of the US dollar’s broad strength. Though, markets are now awaiting the key employment data from the UK for fresh impulse.

The UK PM Johnson’s Brexit aide and the key negotiator David Frost crossed wires, while speaking at the Université libre de Bruxelles, during the early Asian session. The Tory member shares the same view as PM Johnson while saying, “the freedom to diverge from EU rules was the ‘point of the whole project’ of Brexit. The diplomat also showed readiness to accept Australia-style trade relations with the EU if the aim of Canada-type bonds seems tough.

Also weighing on the Cable was the Independent’s news surrounding the Tory government’s preparedness for no-deal Brexit and an exit of the controversial aide Andrew Sabinksy.

On the other hand, the market’s risk-tone was weighed down by the coronavirus concerns, which in turn propelled the greenback. Even if the pace of the coronavirus from mainland China and the epicenter Hubei have started receding, doubt surrounding the authenticity and a higher toll among medical workers haunt the trade sentiment and support the USD.

Traders will now keep eyes on the January month Claimant Count Change and three-month to December Unemployment Rate, coupled with the Average Earning figures for the 3Mo/Yr). Considering the recently upbeat activity numbers from the UK, any more fundamental strength could push the BOE to leave its bearish bias.

Ahead of the release, TD Securities said, “while the Bank of England's last MPR looks for the unemployment rate to stay unchanged at 3.8% for the next 3-4 months, we look for an uptick to 3.9% in December (mkt 3.8%), with the potential for another pop higher in January. For wage growth, we look for the recent pattern of deceleration to continue, with headline wage growth slowing to 3.0% y/y (mkt 3.0%), and private sector regular pay to 3.3% y/y (mkt: 3.3%). For the latter measure, the short-term trend growth rate has more than halved from a peak of 5.0% on a 3m/3m annualized basis in July to 2.2% as of November.”

Technical Analysis

With the clear break of a one-week-old support line (now resistance at 1.3015), GBP/USD is expected to revisit February 10 top near 1.2950 ahead of targeting the monthly bottom surrounding 1.2870.