GBP/USD, USD/JPY Forecast: Two trades to watch

GBP/USD falls as wage growth falls to a 5 -year low

The pound is edging higher into the week versus the US dollar as investors digest the latest UK jobs data. It’s worth keeping in mind that these figures are from before the start of the recent conflict.

Headline unemployment fell to 4.9%, down from 5.2%. However, this does not appear to be due to a significant shift into employment. Employment over the quarter was little changed; instead, the fall in the unemployment rate is largely due to rising economic inactivity—in other words, people neither in work nor actively seeking employment. As a result, the drop in unemployment is not necessarily the positive signal it may initially appear to be.

This is further supported by the ongoing decline in PAYE company payrolls, at least part of which is attributed to last year’s employer National Insurance tax hike and the increase in the minimum wage, both of which are having a larger impact on employment than inflation. Furthermore, higher oil prices are also likely to put upward pressure on unemployment in the coming months.

Vacancies have dropped to a five-year low as a result of fewer available jobs increasing competition for each jobs.

This is not a backdrop conducive to strong wage growth. In fact, private sector pay growth of around 3.2% is consistent with a 2% inflation target at the Bank of England. However, with headline inflation expected to rise towards 4% by Q3, real wages are set to fall, and pressure on economic growth could increase.

The data comes ahead of tomorrow’s inflation figures, which are expected to show CPI rising 3.3% year-on-year in March, up from 3% in February, as the energy shock from the Iran conflict begins to feed into the data.

The Bank of England’s rate decision is due next week, and the central bank will likely keep interest rates unchanged despite inflation sitting above the 2% target. Governor Andrew Bailey has attempted to rein in hawkish expectations, with recent comments suggesting that markets may have been getting ahead of themselves with aggressive BoE pricing.

In addition to data and the central bank outlook, attention is also on Keir Starmer, who is under pressure surrounding the appointment of Peter Mandelson as US ambassador. Starmer appears on somewhat shaky political ground, which is a concern for sterling, as any replacement could be more left-leaning and inclined toward higher spending despite the UK’s fragile public finances.

Meanwhile, the US dollar is inching higher after falling against its major peers yesterday, supported by optimism that a deal with Iran will be reached despite renewed tensions over the weekend. Attention will also be on Kevin Walsh’s hearing at the Senate Banking Committee, as well as US retail sales data later today.

GBP/USD forecast – technical analysis

GBP/USD has recovered from the 1.3150 March low, rising out of its falling channel and above the 50-day moving average to a peak of 1.36. The price has eased back slightly and is now consolidating around the 1.35 level.

Buyers will look to extend the move above 1.36 towards 1.37 and potentially 1.3870, the 2026 high.

A break below 1.35 exposes the 50- and 200-day SMAs around 1.3415, with further support at 1.3340.

USD/JPY rises with US-Iran peace talks in focus & ahead of Warsh’s hearing

The US dollar is broadly firmer against its major peers, as investors eye potential US–Iran peace talks. Ongoing disruption around the Strait of Hormuz is keeping inflation concerns elevated, supporting the dollar. However, any significant appreciation in the dollar could be limited owing to lower expectations of a rate hike by the Federal Reserve. According to CME FedWatch, there is roughly a 45–50% chance that the Fed could cut rates by the end of the year, which may limit further upside.

In addition to peace talks, attention will also be on Kevin Warsh’s testimony before the Senate Banking Committee.

The Japanese yen is weaker on Tuesday and remains under pressure despite falling oil prices, amid ongoing uncertainty surrounding the monetary policy outlook. The Bank of Japan is likely to leave rates unchanged this month as it evaluates the economic fallout from the Middle East conflict, although it could begin raising rates again as soon as June. The BoJ is expected to raise its inflation forecast and trim growth projections amid elevated energy costs and headwinds from the Iran conflict.

Markets remain focused on US–Iran negotiations, with both sides expected to send a delegation to Pakistan for a second round of talks before the ceasefire expires later today.

USD/JPY forecast – technical analysis

USD/JPY is trading in a holding pattern, capped on the upside near 160 and supported on the downside around 158. The outlook is neutral, although the price remains above the 50- and 200-day SMAs.

Buyers would need to break above 160 in order to create a higher high and look up towards 162, the 2024 high.

Sellers would need to break below 158, which is also the 50 SMA as well as the April and March low to create a lower low, opening the door towards 156, the round number.