GBP/USD Forecast: Pound Sterling could test 1.2820 if NFP fails to support USD

GBP/USD clings to modest daily gains above 1.2750 on Friday.
BoE left the bank rate unchanged at 5.25% as expected.
US Bureau of Labor Statistics will release January jobs report.

Eren Sengezer FXStreet

GBP/USD gathered bullish momentum and closed in positive territory on Thursday after dipping below 1.2650 with the immediate reaction to the Bank of England's (BoE) policy announcements. The pair holds its ground in the European session on Friday and trades modestly higher on the day above 1.2750.

The BoE maintained the bank rate at 5.25%, as expected, following the first policy meeting of the year. The BoE dropped the statement that read "further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures" but said that they need more evidence that inflation will fall to the 2% target and stay there before cutting rates.

In the post-meeting press conference, Governor Andrew Bailey didn't offer any hints on the possible timing of a policy pivot. Pound Sterling came under modest selling pressure but the broad-based US Dollar (USD) weakness helped GBP/USD reverse its direction in the American session.

Pound Sterling price this week

The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies this week. Pound Sterling was the strongest against the US Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.41%	-0.46%	-0.58%	-0.28%	-0.93%	-0.91%	-0.92%
EUR	0.43%		-0.02%	-0.15%	0.16%	-0.47%	-0.47%	-0.49%
GBP	0.46%	0.03%		-0.11%	0.19%	-0.43%	-0.45%	-0.46%
CAD	0.58%	0.16%	0.12%		0.31%	-0.32%	-0.31%	-0.33%
AUD	0.27%	-0.15%	-0.19%	-0.31%		-0.64%	-0.63%	-0.65%
JPY	0.91%	0.45%	0.58%	0.32%	0.62%		-0.01%	-0.02%
NZD	0.90%	0.50%	0.46%	0.33%	0.63%	-0.01%		-0.01%
CHF	0.91%	0.49%	0.46%	0.34%	0.64%	0.01%	0.02%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

On Friday, the US Bureau of Labor Statistics will publish January jobs report. Nonfarm Payrolls (NFP) are forecast to rise by 180,000 in January following December's better-than-expected 216,000 growth. Earlier in the week, Federal Reserve Chairman Jerome Powell explained that they could consider lowering the policy rate sooner if they saw an unexpected weakening in the labor market.

A disappointing NFP print, between 100K and 150K, could force the USD to continue to weaken ahead of the weekend and fuel another leg higher in GBP/USD. On the other hand, markets could continue to lean toward a Fed rate cut in May and help USD find a foothold. According to CME FedWatch Tool, markets are still pricing in a 35% probability of a Fed rate reduction in March.

GBP/USD Technical Analysis

GBP/USD pierced through 1.2700, where the 50-, 100- and 200-period Simple Moving Averages (SMA) on the 4-hour chart are located, and closed the last 4 4-hour candles above that level. Meanwhile, the Relative Strength Index (RSI) indicator rose to 60, confirming the bullish tilt in the short-term outlook.

On the upside, 1.2780 (static level) aligns as interim resistance before 1.2820 (end-point of the latest uptrend) and 1.2860 (static level from July). Strong support is located at 1.2700 before 1.2650 (Fibonacci 23.6% retracement).

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Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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