GBP/USD attracts some buyers above the 1.2600 area, lacks bullish conviction

The GBP/USD pair recovers some recent losses and holds above the 1.2600 mark during the early European session on Monday. The major pair currently trades around 1.2612, gaining 0.17% on the day.

Markets remain subdued due to the Labor Day holiday in the US after a busy week of economic data released. The US Bureau of Labor Statistics revealed on Friday that the US Nonfarm Payrolls (NFP) for August came in at 187K, beating the expectations of 170K and 157K in the previous reading. The Unemployment Rate dropped significantly to 3.8%, compared to the market consensus of 3.5% and 3.5% prior. The monthly Average Hourly Earnings rose by 0.2%, against the estimation of 0.3%. Finally, the US Manufacturing PMI came in at 47.6 versus 46.4 prior and better than 47.0 expected.

Market participants speculate that the Federal Reserve (Fed) might end its cycle of monetary tightening. According to the CME FedWatch tool, the markets have priced in the fact that the Fed will not raise interest rates at its September meeting, and the probability of raising rates in November and December dropped to nearly 35%. Despite posting the lowest weekly gain since the beginning of July, the US Dollar (USD) trades in positive territory for the sixth consecutive week.

On the Pound Sterling front, the data released on Friday indicated that August was the weakest month for British factories since the beginning of the COVID-19 crisis, with orders plunging substantially due to rising interest rates. The S&P Global/CIPS Manufacturing PMI came in at 43.0 In August from 45.3 in July. The figure marked the six consecutive months below the 50 threshold. However, traders anticipate the odds of a 25 basis points (bps) rate hike in the upcoming meeting.

The BoE Chief Economist Huw Pill noted last week that inflation in the United Kingdom remains too high and added that there are several measures in the pipeline. The aggressive tightening of monetary policy by the BoE exerts some pressure on the British Pound considering investors fear the negative impact on the UK economy.

In the absence of the top-tier economic data release from the UK docket and the US holiday, investors will digest last week’s data ahead of the US ISM Services PMI for August. The figure is expected to rise to 52.6. Investors will take cues from the data and find opportunities around the GBP/USD pair.