GBP/USD Weekly Forecast: Pound Sterling buyers face exhaustion ahead of US Nonfarm Payroll
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UPGRADE- The Pound Sterling hit its highest in over two years against the US Dollar, then retreated.
- GBP/USD could extend the pullback on profit-taking ahead of key US employment data.
- The Pound Sterling has eased off the overbought territory on the daily RSI, but buyers look cautious.
The buying interest in the Pound Sterling (GBP) against the US Dollar (USD) remained unabated, sending the GBP/USD pair to a 29-month-high above 1.3250 before sellers fought back control in the second half of the week.
Pound Sterling witnessed good two-way business
GBP/USD extended the previous week’s winning momentum and recorded a 29-month high at 1.3266, as the US Dollar downside gathered steam in the early part of the week. US Federal Reserve (Fed) Chairman Jerome Powell’s dovish remarks at the Jackson Hole Symposium on August 23 continued to ramp up dovish expectations surrounding potential interest-rate cuts later this year, exacerbating the pain in the USD.
Powell clearly confirmed that the Fed’s easing cycle will begin in September, noting that "the time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks." The US Dollar Index (DXY) reached its lowest in thirteen months on Tuesday, despite the resilience shown by the US Treasury bond yields amid strong government bond auctions.
Escalating geopolitical tensions between Israel and Iran also failed to lift the haven demand for the Greenback. Israel launched a preemptive airstrike on Hezbollah in southern Lebanon on Sunday, reportedly using 100 jet fighters to hit 40 locations, as Hezbollah was said to launch a large-scale missile and rocket attack on northern and central Israel with the intended target being Mossad, the Israeli spy agency.
The tide, however, turned in favor of USD buyers after Atlanta Fed President Raphael Bostic pushed back against the first rate cut likely in September, noting that “inflation has come down faster than expected, unemployment has risen farther than thoughts. This means we should pull forward rate cut to third-quarter.”
Further, a sell-off in tech stocks due to the disappointing sales forecast by American AI giant, Nvidia, infused safe-haven flows into the US Dollar, triggering a fresh correction in GBP/USD from almost multi-year highs. Additionally, increased bets for a rate cut in September by the European Central Bank (ECB) fuelled a EUR/USD sell-off, providing extra legs to the US Dollar upswing at the expense of the Pound Sterling.
The upward revision to the US second-quarter Gross Domestic Product (GDP) data on Thursday also contributed to the renewed optimism around the US Dollar, as the GBP/USD pair gave up the 1.3200 threshold.
The US economy grew last quarter at an annual pace of 3%, fueled by strong consumer spending and business investment, an upgrade to the government’s initial reading of 2.8%. Markets now price in only 33% odds of a 50 basis point (bp) cut next month, down from 38% seen at the start of the week, according to the CME Group's FedWatch Tool.
The pair languished in weekly lows on the week's final trading day, with traders unnerved ahead of the high-impact US core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge.
On a yearly basis, the PCE Price Index rose 2.5%, the US Bureau of Economic Analysis (BEA) reported on Friday. This reading came in below the market expectation of 2.6%. The core PCE Price Index, which excludes volatile food and energy prices, increased 2.6% in the same period, matching June's increase and coming in below the market forecast of 2.7%. The core PCE Price Index rose 0.2% on a monthly basis, as anticipated. July PCE inflation figures failed to trigger a market reaction and made it difficult for GBP/USD to stage a rebound.
US Nonfarm Payrolls to stand out in the holiday-shortened week
Another holiday-shortened week is in the offing, as the United States (US) observes Labor Day on Monday. There is nothing of note from the United Kingdom (UK) docket on that day, except for the final S&P Global Manufacturing PMI.
It’s a data-sparse economic calendar in the UK in the week ahead. In contrast, the high-impact US employment data will trickle in from Wednesday, with the all-important US Nonfarm Payrolls data slated for release on Friday.
Earlier in the week, the US ISM Manufacturing PMI will be reported on Tuesday. Meanwhile, the US JOLTS Job Openings survey will drop on Wednesday.
The usual weekly Jobless Claims from the US will be published after the ADP Employment Change data, followed by the ISM Services PMI.
Apart from the data releases, GBP/USD traders will keep a close eye on the sentiment around the central banks’ policy expectations, speeches from Fed officials and Middle East geopolitical risks.
GBP/USD: Technical Outlook
The GBP/USD pair remains poised for further upside but a brief correction could be in the offing, in the wake of the relentless rise seen this month.
Should the pullback extend into the upcoming week, the July 17 high of 1.3045 will be challenged initially. A failure to sustain above that level could trigger a fresh decline toward the 21-day Simple Moving Average (SMA) at 1.2959.
The next relevant cushion is seen at the March 8 top of 1.2894, which coincides with the 50-day SMA, making it a healthy support level.
Only a firm break below the latter will accelerate the downside toward the critical confluence demand area near 1.2730, where the 100-day and 200-day SMAs hang around.
However, with the 14-day Relative Strength Index (RSI) still well above the 50 level, any corrective pullback in GBP/USD could be seen as a good ‘dip-buying’ opportunity.
On the upside, GBP/USD could meet interim resistance at 1.3250 before the 29-month high of 1.3266 will be retested.
Further up, Pound Sterling buyers will aim for the 1.3300 round level and the 1.3350 psychological barrier.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
- The Pound Sterling hit its highest in over two years against the US Dollar, then retreated.
- GBP/USD could extend the pullback on profit-taking ahead of key US employment data.
- The Pound Sterling has eased off the overbought territory on the daily RSI, but buyers look cautious.
The buying interest in the Pound Sterling (GBP) against the US Dollar (USD) remained unabated, sending the GBP/USD pair to a 29-month-high above 1.3250 before sellers fought back control in the second half of the week.
Pound Sterling witnessed good two-way business
GBP/USD extended the previous week’s winning momentum and recorded a 29-month high at 1.3266, as the US Dollar downside gathered steam in the early part of the week. US Federal Reserve (Fed) Chairman Jerome Powell’s dovish remarks at the Jackson Hole Symposium on August 23 continued to ramp up dovish expectations surrounding potential interest-rate cuts later this year, exacerbating the pain in the USD.
Powell clearly confirmed that the Fed’s easing cycle will begin in September, noting that "the time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks." The US Dollar Index (DXY) reached its lowest in thirteen months on Tuesday, despite the resilience shown by the US Treasury bond yields amid strong government bond auctions.
Escalating geopolitical tensions between Israel and Iran also failed to lift the haven demand for the Greenback. Israel launched a preemptive airstrike on Hezbollah in southern Lebanon on Sunday, reportedly using 100 jet fighters to hit 40 locations, as Hezbollah was said to launch a large-scale missile and rocket attack on northern and central Israel with the intended target being Mossad, the Israeli spy agency.
The tide, however, turned in favor of USD buyers after Atlanta Fed President Raphael Bostic pushed back against the first rate cut likely in September, noting that “inflation has come down faster than expected, unemployment has risen farther than thoughts. This means we should pull forward rate cut to third-quarter.”
Further, a sell-off in tech stocks due to the disappointing sales forecast by American AI giant, Nvidia, infused safe-haven flows into the US Dollar, triggering a fresh correction in GBP/USD from almost multi-year highs. Additionally, increased bets for a rate cut in September by the European Central Bank (ECB) fuelled a EUR/USD sell-off, providing extra legs to the US Dollar upswing at the expense of the Pound Sterling.
The upward revision to the US second-quarter Gross Domestic Product (GDP) data on Thursday also contributed to the renewed optimism around the US Dollar, as the GBP/USD pair gave up the 1.3200 threshold.
The US economy grew last quarter at an annual pace of 3%, fueled by strong consumer spending and business investment, an upgrade to the government’s initial reading of 2.8%. Markets now price in only 33% odds of a 50 basis point (bp) cut next month, down from 38% seen at the start of the week, according to the CME Group's FedWatch Tool.
The pair languished in weekly lows on the week's final trading day, with traders unnerved ahead of the high-impact US core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge.
On a yearly basis, the PCE Price Index rose 2.5%, the US Bureau of Economic Analysis (BEA) reported on Friday. This reading came in below the market expectation of 2.6%. The core PCE Price Index, which excludes volatile food and energy prices, increased 2.6% in the same period, matching June's increase and coming in below the market forecast of 2.7%. The core PCE Price Index rose 0.2% on a monthly basis, as anticipated. July PCE inflation figures failed to trigger a market reaction and made it difficult for GBP/USD to stage a rebound.
US Nonfarm Payrolls to stand out in the holiday-shortened week
Another holiday-shortened week is in the offing, as the United States (US) observes Labor Day on Monday. There is nothing of note from the United Kingdom (UK) docket on that day, except for the final S&P Global Manufacturing PMI.
It’s a data-sparse economic calendar in the UK in the week ahead. In contrast, the high-impact US employment data will trickle in from Wednesday, with the all-important US Nonfarm Payrolls data slated for release on Friday.
Earlier in the week, the US ISM Manufacturing PMI will be reported on Tuesday. Meanwhile, the US JOLTS Job Openings survey will drop on Wednesday.
The usual weekly Jobless Claims from the US will be published after the ADP Employment Change data, followed by the ISM Services PMI.
Apart from the data releases, GBP/USD traders will keep a close eye on the sentiment around the central banks’ policy expectations, speeches from Fed officials and Middle East geopolitical risks.
GBP/USD: Technical Outlook
The GBP/USD pair remains poised for further upside but a brief correction could be in the offing, in the wake of the relentless rise seen this month.
Should the pullback extend into the upcoming week, the July 17 high of 1.3045 will be challenged initially. A failure to sustain above that level could trigger a fresh decline toward the 21-day Simple Moving Average (SMA) at 1.2959.
The next relevant cushion is seen at the March 8 top of 1.2894, which coincides with the 50-day SMA, making it a healthy support level.
Only a firm break below the latter will accelerate the downside toward the critical confluence demand area near 1.2730, where the 100-day and 200-day SMAs hang around.
However, with the 14-day Relative Strength Index (RSI) still well above the 50 level, any corrective pullback in GBP/USD could be seen as a good ‘dip-buying’ opportunity.
On the upside, GBP/USD could meet interim resistance at 1.3250 before the 29-month high of 1.3266 will be retested.
Further up, Pound Sterling buyers will aim for the 1.3300 round level and the 1.3350 psychological barrier.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
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