GBP/USD Forecast: Pound Sterling could struggle to stage a decisive rebound
- GBP/USD touched its lowest in nearly a month on Friday.
- The technical outlook suggests that the pair is in the process of a correction.
- US economic calendar will feature labor market data for July.
GBP/USD extended its slide after losing 0.9% on Thursday and touched its weakest level in nearly a month below 1.2710 early Friday. Although the pair managed to erase its daily gains, it could have a difficult time gathering momentum.
British Pound PRICE This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.34% | 1.04% | -3.10% | 0.33% | 0.57% | -0.93% | -1.45% | |
| EUR | -0.34% | 0.67% | -3.42% | 0.02% | 0.27% | -1.28% | -1.76% | |
| GBP | -1.04% | -0.67% | -4.10% | -0.67% | -0.39% | -1.92% | -2.41% | |
| JPY | 3.10% | 3.42% | 4.10% | 3.52% | 3.83% | 2.24% | 1.74% | |
| CAD | -0.33% | -0.02% | 0.67% | -3.52% | 0.27% | -1.28% | -1.76% | |
| AUD | -0.57% | -0.27% | 0.39% | -3.83% | -0.27% | -1.52% | -2.03% | |
| NZD | 0.93% | 1.28% | 1.92% | -2.24% | 1.28% | 1.52% | -0.50% | |
| CHF | 1.45% | 1.76% | 2.41% | -1.74% | 1.76% | 2.03% | 0.50% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
The Bank of England (BoE) announced on Thursday that it lowered the policy rate by 25 basis points to 5%. In the post-meeting press conference, BoE Governor Andrew Bailey refrained from confirming additional policy easing in the near future but failed to help Pound Sterling gather strength against its rivals.
Later in the session, the US Bureau of Labor Statistics will release the labor market data for July. Nonfarm Payrolls (NFP) are forecast to rise 175,000 in July, following the 216,000 increase recorded in June. The Unemployment Rate is seen holding steady at 4.1%.
A disappointing NFP print, below 150,000, could cause the USD to weaken against its peers with the immediate reaction. On the other hand, a positive surprise of 200,000, or higher, could boost the USD and force GBP/USD to continue to stretch lower ahead of the weekend.
In the meantime, US stock index futures were last seen losing between 0.7% and 1.7% on the day. In case safe-haven flows dominate the markets in the American session, the USD could regather its strength even if the NFP reaction seems USD-negative at first.
GBP/USD Technical Analysis
GBP/USD started to edge higher after testing 1.2710-1.2700 support area, where the Fibonacci 78.6% retracement of the latest uptrend and the psychological level align. Meanwhile, the Relative Strength Index (RSI) indicator on the four-hour chart stays slightly below 30 after recovering from below-20, suggesting that the pair is in the process of correcting its oversold conditions.
On the upside, 1.2750 (static level) aligns as immediate resistance before 1.2780 (Fibonacci 61.8% retracement) and 1.2800 (200-period Simple Moving Average).
In case GBP/USD falls below 1.2710-1.2700 area, 1.2620 (beginning point of the uptrend, static level) could be set as the next bearish target.
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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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
