GBP/USD Forecast: Pound Sterling sellers refuse to give in
- GBP/USD stabilizes near 1.2900 following Thursday's sharp decline.
- The near-term technical outlook points to a bearish tilt.
- Nonfarm Payrolls in the US are forecast to rise by 113,000 in October.
GBP/USD trades in a tight channel at around 1.2900 in the European morning on Friday after closing deep in the red on Thursday. The pair remains technically bearish as investors await October labor market data from the United States (US).
British Pound PRICE This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the weakest against the Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.72% | 0.51% | -0.59% | 0.33% | 0.71% | 0.30% | -0.43% | |
| EUR | 0.72% | 1.35% | 0.05% | 1.06% | 1.52% | 1.03% | 0.32% | |
| GBP | -0.51% | -1.35% | -0.47% | -0.18% | 0.22% | -0.24% | -0.78% | |
| JPY | 0.59% | -0.05% | 0.47% | 0.99% | 0.67% | 0.15% | -0.31% | |
| CAD | -0.33% | -1.06% | 0.18% | -0.99% | 0.34% | -0.10% | -0.72% | |
| AUD | -0.71% | -1.52% | -0.22% | -0.67% | -0.34% | -0.52% | -1.18% | |
| NZD | -0.30% | -1.03% | 0.24% | -0.15% | 0.10% | 0.52% | -0.73% | |
| CHF | 0.43% | -0.32% | 0.78% | 0.31% | 0.72% | 1.18% | 0.73% |
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 British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Although mixed macroeconomic data releases from the US made it difficult for the US Dollar (USD) to gather strength, GBP/USD struggled to find a foothold as safe-haven flows dominated the action in financial markets on Thursday.
Meanwhile, British Prime Minister Keir Starmer's spokesperson refrained from commenting on the market reaction to the UK budget announcement when asked late Thursday. "The Chancellor Rachel Reeves has been very clear that first and foremost, this budget has been about restoring fiscal stability, and she's outlined two new robust fiscal rules, which put public finances on a sustainable path," the spokesperson explained.
In the second half of the day, the US Bureau of Labor Statistics will release the employment report. Nonfarm Payrolls (NFP) in the US are expected to rise by 113,000 in October, following the 254,000 increase recorded in September. A disappointing reading below 100,000 could feed into expectations for two more 25 basis points rate cuts by the Federal Reserve (Fed) this year and cause the USD to come under pressure with the immediate reaction.
On the other hand, a positive surprise with an NFP print of 150,000 or higher, could support the USD and force GBP/USD to stay on the back foot heading into the weekend.
Toward the end of the European session, investors could look to book profits and adjust positions ahead of next week's US presidential election and Fed policy meeting. As a result, inter-market correlations could weaken and open the door for irregular actions in major currency pairs, making it risky to bet on a directional move depending on the outcome of the US labor market data.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart moves sideways near 40, suggesting that GBP/USD remains bearish but lacks momentum in the near term. On the downside, static support seems to have formed at 1.2850 before 1.2800 (200-day Simple Moving Average(SMA) and 1.2760 (static level).
In case GBP/USD stabilizes above 1.2900, 1.2960 (50-period SMA, 20-period SMA) could be seen as the next resistance ahead of 1.2980 (100-day SMA) and 1.3000 (round level).
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
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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.
