GBP/USD falls to near 1.3100, again unable to hold above 21DMA as strong US data supports Fed tightening bets

• Strong US data saw US yields surge as markets upped their Fed tightening bets, weighing on GBP/USD. 
• The 21DMA continues to act as resistance, pushing the pair lower to near 1.3100, with BoE dovishness hampering sterling’s cause. 

GBP/USD fell during US trade on Friday, as the US dollar strengthened versus the majority of its G10 counterparts following a strong official March labour market report and robust but also highly inflationary March ISM Manufacturing PMI survey release. To recap briefly, the US economy added 432K jobs, the unemployment rate dropped to 3.6% and wages grew at a pace of 5.6% YoY in March, while the headline ISM Manufacturing PMI index remained well in expansion territory, but the Price Paid subindex spiked to its highest levels since last July. The US dollar benefitted from a surge in US yields, particularly at the short-end of the curve. The bond market moves reflected a market interpreting Friday’s data strengthening the likelihood that the Fed opts to lift interest rates in 50 bps intervals in the coming quarters, and as more Fed policymakers indicated their openness to these larger rate moves. 

At the time of writing, GBP/USD is trading just above the 1.3100 level and with on the day losses of about 0.2%. The pair continues to demonstrate that it is unable to break above its 21-Day Moving Average, which has been capping the price action now for nearly two weeks. It’s not just the stronger dollar acting as a headwind, but also poor UK fundamentals. As of this Friday (April 1), households in the UK will be paying over 50% more on their energy bills and this cost of living crisis is worrying the BoE. Indeed, Governor Andrew Bailey on Friday said that the BoE had already seen evidence of an economic slowdown that they expect to weigh on domestically generated inflation moving forward. That comes after the BoE softened its tone at its last meeting on the need for further rate hikes in the coming quarters to tackle inflation. 

So just as the Fed is likely to become more hawkish, the BoE is getting more dovish. That suggests GBP/USD may continue having a tough time in getting above its 21DMA and bears will be eyeing downside targets. The main ones to look at are this week’s earlier lows in the 1.3050 area and March lows at pretty much bang on the psychologically important 1.3000 level just below it.