GBP/USD declines towards 1.2400 as geopolitical tensions dampen market mood, US NFP eyed

The GBP/USD pair is hovering near Wednesday’s low at 1.2440 in the Asian session. The Cable is expected to extend its downside journey as geopolitical tensions between the United States and China over Taiwan have dampened the overall market mood. China’s retaliation over arms support to Taiwan by the US might result in some restrictions on exports from China to the US.

S&P500 futures have generated decent losses in the Asian session, continuing its two-day losing streak amid deepening fears of a recession in the US economy. After five straight months of contraction in the US manufacturing sector, the weaker-than-anticipated US Services PMI has strengthened signs of a slowdown. Fortunately, the US Services PMI has not fallen into a contraction trajectory yet.

US-China tensions have improved the safe-haven appeal of the US Dollar Index (DXY) firmly. The USD Index has shifted its auction above 102.00 and is expected to extend gains ahead. The demand for US government bonds is recovering in hopes that the Federal Reserve (Fed) will consider an early pause to the policy-tightening spell. This has eased some recovery in the 10-year US Treasury yields and has pushed them below 3.30%.

As per the CME Fedwatch tool, the chances for a steady Fed interest rate decision are sticky above 50%.

Going forward, the release of the US Nonfarm Payrolls (NFP) data will provide clarity over the labor market condition. Scrutiny of US Automatic Data Processing (ADP) Employment data is indicating a slowdown in the labor market ahead.

On the Pound Sterling front, Bank of England (BoE) policymakers’ anticipation that United Kingdom inflation will start declining quickly looks vague. There are no signs that UK inflation has started softening, however, a fresh jump in oil prices is expected to put more burden on households.