- A combination of factors assisted GBP/USD to regain some positive traction on Thursday.
- Hawkish Fed expectations, rallying US bond yields underpinned the USD and capped gains.
- The market focus remains glued to Friday’s release of the closely-watched US NFP report.
The GBP/USD pair regained positive traction on Thursday and inched back closer to weekly tops, reversing the previous day's retracement slide. A temporary truce in the debt-ceiling standoff in the US Congress relieved concerns of a possible government debt default later this month and boosted investors' confidence. This was evident from a fresh wave of the global risk-on trade, which held traders from placing fresh bullish bets around the safe-haven US dollar. This, in turn, was seen as a key factor that extended some support to the major. The Senate voted 50-48 to extend the debt ceiling until early December. The bill will now be sent to the House of Representatives for approval before it can be sent to President Joe Biden for his signature.
The British pound was further supported by signs of easing fuel crisis in the UK, which began two weeks ago when a handful of petrol stations were closed due to a shortage of tanker drivers. The news prompted panic buying across the country and saw pumps run dry, forcing the government to send the army to work on delivering fuel across the country. This comes amid speculations that the Bank of England (BoE) is heading towards tightening next year and further underpinned the sterling. This helped offset dovish comments from the new BoE chief economist Huw Pill, anticipating interest rates to remain at low levels for the coming years. That said, a strong rally in the US Treasury bond yields helped limit the USD losses and capped gains for the major.
The US bond yields have been rallying since late September when the Fed signalled that it would begin tapering its monthly bond purchases by the end of 2021. The markets also seem to have started pricing in the prospects for an interest rate hike in 2022 amid worries that the continuous surge in crude oil/energy prices will stoke inflation. This was seen as another factor that contributed to the spike in yields, which acted as a tailwind for the greenback and prompted some selling around the pair during the Asian session on Friday. Despite the two-way price moves since the beginning of this week, the pair has been confined in a familiar trading range as market participants await the release of the closely-watched US monthly jobs data.
The popularly known NFP report, scheduled for release later during the early North Ameican session on Friday, is expected to show an addition of 488K new jobs in September. This will influence market expectations about the likely timing of the policy tightening by the Fed, which will play a key role in driving the USD and provide a fresh directional impetus to the major.
From a technical perspective, this week's corrective pullback showed some resilience below 200-hour SMA. This, along with acceptance above the 38.2% Fibonacci level of the 1.3913-1.3412 downfall favours bullish traders and might have already set the stage for additional gains. However, it will be prudent to wait for some follow-through buying beyond the weekly swing highs, around the 1.3645-50 region, nearing the 50% Fibo. level, before placing fresh bullish bets. The momentum might then push the pair back towards the 1.3700 mark en-route the 61.8% Fibo. level, around the 1.3720-25 zone and the next relevant hurdle near mid-1.3700s.
On the flip side, any meaningful pullback below the 1.3600 mark might continue to find decent support near the 1.3540-30 region. This coincides with the 23.6% Fibo. level, which if broken decisively will shift the bias back in favour of bearish traders. Some follow-through selling below the key 1.3500 psychological mark will reaffirm the bearish bias and turn the pair vulnerable to slide back towards September monthly swing lows, around the 1.3410 region.
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