GBP/USD surges above 1.2200 despite positive US Nonfarm Payrolls and high US yields

• GBP/USD rebounds from multi-month lows, climbing to 1.2240s amidst a backdrop of positive US labor market data.
• US Treasury bond yields echo a 'higher-for-longer' sentiment, while Fed officials present a somewhat moderated stance.
• Upcoming data, including US inflation figures and UK GDP, will influence the pair’s trajectory in the coming week.

The Pound Sterling (GBP) rallied for the third consecutive day against the US Dollar (USD) on Friday as the North American session began to wind down ahead of the weekend. Although September’s Nonfarm Payrolls report was positive, the GBP/USD recovered after reaching multi-month lows of 1.2037 and has risen more than 1.70% towards 1.2240s.

Pound Sterling leaps vs. USD amid central bank divergence between the BoE and the Fed

During the week, the GBP/USD pair was driven by expectations of further tightening by the US Federal Reserve (Fed). Even though most Fed speakers moderated their tone, US Treasury bond yields reflected the higher-for-longer mantra after reaching highs last seen in 2007. Michelle Bowman was the only Fed official who stated she would like to see another rate hike.

On the data front, the JOLTs Job Openings data was a prelude to today’s US Nonfarm Payrolls, which crushed estimates and the prior month's numbers. However, a moderate deceleration is business activity linked to the services sector portrays the slowing economy, but it remains expanding.

On the UK front, the S&P Global/CIPS Services PMI, although it exceeded estimates, deteriorated a tick. Speculations about a stagnating economy have trimmed the odds for additional tightening by the Bank of England (BoE), even though its Governor, Andrew Bailey, commented that inflation at around 6.7% would continue to fall amidst rates staying at around 5.25%.

Next week, the US economic docket will feature Fed speakers, producer and consumer price inflation figures, unemployment claims, and consumer sentiment. On the UK front, the Gross Domestic Product (GDP) would dictate the future direction for the Pound Sterling, along with the Goods Trade Balance and Industrial Production.

GBP/USD Price Analysis: Technical outlook

After printing a two-candlestick ‘bullis-engulfing’ chart pattern on Wednesday, price action exploded to the upside, but it has remained volatile, as Friday’s low pierced October 5 daily low of 1.2105. Buyers stepped in around the latter; consequently, the major reacted upwards of more than 100 pips. If the GBP/USD breaks above the September 29 latest swing high at 1.2271, the pair could rally towards 1.2300 and challenge the 1.2400 figure. Conversely, the Cable would remain subject to further selling pressure below 1.2271.