GBP/USD collapses to new 4-week lows at 1.2059 after robust US economic data

GBP/USD nosedives and extended its losses past the 50 and 200-day Exponential Moving Average (EMA) on Friday after a surprisingly strong jobs report from the United States (US) that increased speculations that the Federal Reserve (Fed) could raise rates back above Wednesday’s 25 basis points mark (bps). At the time of writing, the GBP/USD is trading at 1.2060 after reaching a daily high of 1.2265.

GBP/USD plunged on positive US economic data, warranting further Fed tightening

Investors’ sentiment turned sour after January’s Nonfarm Payrolls report was released. Data showed that the economy added 517K new jobs against the 200K estimated; consequently, the Unemployment Rate tumbled from 3.5% to 3.4%. Additionally, December’s data was revised upward, which means the US Federal Reserve still has ways to go to curb stubbornly high inflation towards the 2% goal.

As the headline crossed the screens, the GBP/USD dived from around its daily highs at 1.2260s and collapsed 200 pips towards the 1.2060 area. In the meantime, the US Dollar Index, a measure of the greenback’s value against a basket of six currencies, rose to a new three-week high at 102.90, up 0.94%.

Later, the Institute for Supply Management (ISM) revealed that services industry activity climbed above expansionary territory, boosted by new orders, while prices paid moderated. The ISM Non-Manufacturing PMI rose by 55.2 last month, vs. 49.2 in December and above the 50.4 foreseen by analysts.

Earlier in the European session, the UK S&P Global/CIPS Services PMI had its worst month in two years, falling to 48.7, down from December’s 49.9, its lowest level since January 2021. Therefore, the S&P Composite PMI, combining manufacturing and services data, slumped to 48.5 in January from 49.0 last month.

What to watch?

Next week’s UK economic calendar will feature the Monetary Policy Report Hearings and the Gross Domestic Product (GDP) MoM and QoQ. Across the pond, the US economic docket will feature the US Federal Reserve speakers, namely Jerome Powell and John C. Williams from the New York Fed. Additionally, Initial Jobless Claims and the University of Michigan (UoM) Consumer Sentiment would shed some light regarding the status of the US economy.

GBP/USD Key Technical Levels