GBP/USD Forecast: Weekly close above 1.2550 could attract buyers

05/03/2024 08:54:46 GMT|ByEren Sengezer

GBP/USD edges higher in the European session on Friday.
April jobs report from the US could drive the pair's action ahead of the weekend.
A weekly close above 1.2550 could bring in additional technical buyers.

Following the bearish action seen in the first half of the day on Thursday, GBP/USD turned north and registered small daily gains. The pair preserves its recovery momentum early Friday and trades in positive territory slightly above 1.2550.

Wall Street's main indexes opened in the green and continued to push higher on Thursday. The US Dollar (USD) continued to lose interest in the risk-averse market atmosphere and helped GBP/USD gain traction.

Later in the session, the US Bureau of Labor Statistics will release the April jobs report. Nonfarm Payrolls (NFP) are forecast to rise 238,000 after the 303,000 increase registered in March. The immediate market reaction could be straightforward, with a strong reading above 250,000 providing a boost to the USD and a disappointing reading at or below 150,000 triggering another USD selloff.

If the NFP arrives near the market consensus, markets could react to revisions. In case revisions are not significant enough, the wage inflation component could drive the USD's valuation.

Average Hourly Earnings are forecast to rise 0.3% on a monthly basis in April. A print at or above 0.5% could revive fears over wage inflation feeding into consumer inflation and help the USD rebound heading into the weekend.

GBP/USD Technical Analysis

GBP/USD was last seen trading slightly above 1.2550, where the 200-day Simple Moving Average (SMA) is located. If the pair manages to end the week above this key level, 1.2600-1.2610 (Fibonacci 50% retracement of the latest downtrend, 50-day SMA) could be seen as next resistance before 1.2650 (100-day SMA).

On the downside, supports are located at 1.2530 (Fibonacci 38.2% retracement), 1.2500 (static level) and 1.2470 (100-period SMA on the 4-hour chart).

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

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