GBP/USD is within its highest range since June 2022, although it has not yet reached the record touched at the end of last week.

The pound sterling strengthened by about 0.5% to reach a high of 1.2443 against the US dollar in the early European session on Tuesday (April 18th). The pound's strength is related to the recovery of global market sentiment and data on UK employee wages that signal the need for further interest rate hikes.

gbpusdGBP/USD Daily chart via TradingView

Today's UK employment report was not encouraging. The number of unemployment claims increased by 28.2k in March 2023, a sharp increase compared to -18.8k in the previous period and exceeding the consensus estimate of 10.2k. The unemployment rate rose from 3.7% to 3.8% in February 2023. However, the wage data increased sharply.

The Average Earnings Index plus Bonus grew by 5.9% in February, far exceeding the estimate of 5.1%. Meanwhile, the Actual Average Earnings Index without Bonus grew by 6.6% versus an estimated 6.2% in the same period.

Such wage growth has the potential to support inflation pressures in the UK, which could prompt the Bank of England (BoE) to raise interest rates further. Therefore, the pound sterling strengthened.

This strengthening helped GBP/USD stay within the highest range since June 2022, although it has not yet been able to reach the record touched last weekend. GBP/JPY also reached the highest range in the last four months.

According to Chris Turner of ING Bank, "We have recently discussed whether weaker UK data will cause the BoE to pause the rate hike cycle at the policy meeting on May 11. Today's wage data suggests they are unlikely to do so," and "Sterling has enjoyed a moderate uplift from today's data."

Dominic Bunning, Head of FX Research Europe at HSBC Bank plc, said, "We have been constructive on GBP since November 2022, and we believe this contrarian view still has room to run, especially given the strong labor market data today."