GBP/USD Forecast: Eyeing 1.32 as Bailey balks at negative rates, dollar weakness set to resume

Not ruling out, but not now – the negative message on sub-zero borrowing costs is boosting the pound. Andrew Bailey, Governor of the Bank of England, has told reporters not to think that the BOE is about to use negative rates, following other positive developments in the bank's "Super Thursday."

The BOE reduced its contraction forecast for 2020 to -9.5% from 14% beforehand and also noted that high-frequency indicators are pointing to robust spending. While the bank refrained from hinting about new bond-buying and repeated that risks are skewed tot he downside, Bailey and his colleagues are seeing the glass half full.

More BOE Quick Analysis: Three pound-positive on Super Thursday open door to new highs

GBP/USD has hit 1.3183, the highest since March, and is holding onto most of its gains.

Cable is defying the dollar's attempt to recover from two blows on Thursday. ADP's jobs report showed a meager gain of 167,000 jobs, much lower than 1.5 million expected. The employment gauge of the ISM Non-Manufacturing Purchasing Managers' Index pointed to weak hiring in the services sector. 

The focus now shifts to jobless claims, which are projected to fall after a worrying increase beforehand. The high-frequency weekly figures will add to jitters ahead of Friday's all-important Non-Farm Payrolls. Did the US lose jobs in July? The chances are rising, and analysts may downscale their forecasts. 

See:

• US Initial Jobless Claims: Can claims and payrolls rise at the same time?
• US Non-Farm Payrolls Preview: A dual-track labor market or imperfections in the data?

President Donald Trump has threatened to use an executive order to extend federal unemployment claims – a key program that has kept consumption upbeat in the wake of coronavirus. His move comes as Democrats and Republicans remain divided on the next fiscal boost. Markets are pricing in a large package, seeing through politicians' blame-game. 

Further developments in Washington and updated coronavirus figures are eyed later in the day. The COVID-19 curves have begun bending lower in America, yet remain elevated. 

UK coronavirus cases are grinding higher, with the Scottish administration slapping new restrictions on Aberdeen. The northern oil hub joins Leicester, Manchester, and other areas that have suffered setbacks. For now, the focus is on the BOE and not on COVD-19, nor on US-UK trade talks. Negotiations continue, but expectations for an accord this year remain slim. 

Overall, it seems that the backwind from the BOE could continue pushing the pound higher, especially if the dollar fails to receive good news.

GBP/USD Technical Analysis

The Relative Strength Index on the four-hour chart is still below 70 – outside overbought conditions and allowing bulls to squeeze more gains. Momentum remains positive and pound/dollar is holding above the 50, 100, and 200 Simple Moving Averages.

Above the fresh high of 1.3183, the next barrier is 1.32 – March's high. Further above, 1.3270 and 1.3320 are eyed.

Support awaits at 1.3110, the daily low, followed by 1.3055, a stepping stone on the way up. Next, 1.2980 and 1.2905 are eyed.