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GBP/USD dives below 1.2100 after stellar US NFP, US inflation eyed

  • The GBP/USD prepares to finish the week with hefty losses of 0.78%.
  • US labor data poured cold water on recession fears ahead of next week’s CPI.
  • BoE’s Pill: The bank will reach its inflation target, but it “will take some time.”

The GBP/USD tanks reached a fresh weekly low at 1.2002 as a reaction to a stellar US employment report which eases US recession fears while increasing the odds for further Federal Reserve aggressive tightening amidst a 9% inflation in the country.

During the day, the GBP/USD peaked at around 1.2169, but as abovementioned, it tumbled. Still, the GBP/USD is trading at 1.2078, down 0.67%, though some 70 pips above the day’s low.

GBP/USD plunged on US data

Sentiment remains mixed, with most EU stocks closing with losses while US equities wobble. On Friday, the Department of Labor revealed that July Nonfarm Payrolls added 528K jobs to the US economy, smashing estimations of 250K. Additional data from the US jobs report illustrates that the labor market remains tight, with the Unemployment rate falling to 3.5% and Average Hourly Earnings increasing 0.5% MoM while, on an annual basis, rose by 5.2%

On Thursday, Cleveland’s Fed President Loretta Mester kept her hawkish stance. She said the rate path outlined by June dot plots is “about right,” while adding that a 75 bps for September is “not unreasonable.”

Elsewhere, the Bank of England Chief Economist Huw Pill crossed wires via Bloomberg. He said that the BoE would return to its 2% inflation target but added that “it’s going to be a process, which is going to take time reflecting the magnitude of shocks we’ve seen,” on Friday. Those remarks came one day after the “old lady” raised rates by 50 bps, the most in 27 years, lifting the Bank’s Rate to 1.75%, and warned that the UK might tap into a recession by the year’s end.

All that said, the GBP/USD prepares to finish the week with losses. The resilience shown by the US economy so far, with ISM PMIs holding the fort in expansionary territory and a solid labor market, paints a positive picture for the greenback. Contrarily, the stagflationary scenario looming in the UK, we can conclude that the Sterling’s weakness could remain towards the next week.

What to watch

Next week, the UK economic docket will feature RICS House Price Balance as the only market mover data. The US docket will feature the Inflation data, namely consumer and producer indices, Initial Jobless Claims, and the University of Michigan’s Consumer Sentiment for August.

GBP/USD Key Technical Levels

GBP/USD

Overview
Today last price1.2074
Today Daily Change-0.0122
Today Daily Change %-1.00
Today daily open1.2161
 
Trends
Daily SMA201.2029
Daily SMA501.2192
Daily SMA1001.2489
Daily SMA2001.2957
 
Levels
Previous Daily High1.2215
Previous Daily Low1.2065
Previous Weekly High1.2246
Previous Weekly Low1.196
Previous Monthly High1.2246
Previous Monthly Low1.176
Daily Fibonacci 38.2%1.2158
Daily Fibonacci 61.8%1.2122
Daily Pivot Point S11.2079
Daily Pivot Point S21.1997
Daily Pivot Point S31.1929
Daily Pivot Point R11.2229
Daily Pivot Point R21.2297
Daily Pivot Point R31.2379

Author

Christian Borjon Valencia

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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