GBP/USD: Cable grinds above 1.2500 as BoE vs. Fed play intensifies, US jobs report eyed

GBP/USD aptly portrays the pre-NFP anxiety in markets during early Friday as it seesaws around 1.2530 by the press time. In doing so, the Cable pair a  |  02/06/2023 02:37

• GBP/USD struggles to extend five-day uptrend at the highest levels in two weeks.
• Hawkish BoE concerns contrast with hopes of Fed’s policy pivot to underpin Cable pair’s latest run-up.
• Cautious mood among British dealmakers, anxiety ahead of US NFP prod Pound Sterling buyers.

GBP/USD aptly portrays the pre-NFP anxiety in markets during early Friday as it seesaws around 1.2530 by the press time. In doing so, the Cable pair also justifies the latest challenges to the upside momentum flagged from London. It’s worth noting, however, that the increase in the odds favoring the monetary policy divergence between the Bank of England (BoE) and the US Federal Reserve (Fed) in the future seems to have underpinned the Pound Sterling’s latest run-up.

That said, the fears that the higher rates will negatively affect the mergers and acquisitions at home, as well as the economic performance, seemed to have prodded the British dealmakers of late. “Activity in mergers and acquisitions in Britain is at its lowest level in seven years as dealmakers remain cautious about the economic outlook,” said The Times.

On the other hand, a pause in the yields and indecisive stock futures also allowed the Cable pair buyers to take a breather.

Recently upbeat UK data and inflation clues, as well as hawkish comments from the Bank of England (BoE) officials, have favored the Pound Sterling across the board during this week. On Thursday, the UK S&P Global/CIPS Manufacturing PMI improved to 47.1 for May versus 46.9 initial estimations. Further, the latest Bank of England (BoE) Monthly Decision Maker Panel (DMP) survey, released on Thursday, businesses in the UK see the year-ahead Consumer Price Index (CPI) at 5.9% in May vs 5.6% in April.

From the US, the US ADP Employment Change eased to 278K in May from 291K prior (revised) but crossed the 170K market forecasts. On the same line, the weekly Initial Jobless Claims rose past 230K prior to 232K, versus 235K expected. Further, US ISM Manufacturing PMI eased to 46.9 in May compared to 47.0 anticipated and 47.1 previous readings whereas S&P Global Manufacturing PMI softened to 48.4 from 48.5 prior. Additionally, the US Employment Cost Index eased while the consumer sentiment gauge improved but the details were unimpressive.

It’s worth observing that Federal Reserve Bank of St. Louis President James Bullard recently published an analysis wherein the Fed hawk accepts that the prospects for continued disinflation are good but not guaranteed, and continued vigilance is required.

As a result, the market’s pricing of the Federal Reserve (Fed) rate hike dropped, from 17 basis points (bps) in June on Wednesday to 7 bps on Thursday, which in turn drowned the US Dollar Index (DXY).

To sum up, the GBP/USD pair is likely to remain firmer amid fresh expectations of the BoE’s stronger rate hikes versus the Fed’s policy pivot. However, it all depends upon today’s US employment data for May.

Technical analysis

A seven-week-old horizontal resistance area surrounding 1.2550 restricts further upside of the GBP/USD pair even if the oscillators are in favor of the bulls. The pullback moves, however, remain elusive beyond the immediate support comprising the 21-DMA level of near 1.2475.