GBP/USD flirts with 1.1550 at two-year low amid pre-NFP anxiety, UK recession woes

GBP/USD remains sidelined around 1.1540-50 during Friday’s Asian session, after refreshing the two-year low the previous day. In doing so, the Cable pair portrays the typical pre-NFP moves despite looming fears of the UK’s recession.

“The UK is already in the midst of a recession, and inflation is on course to hit 14% later this year,” as per the British Chambers of Commerce (BCC) reports shared by Bloomberg. Elsewhere, the Financial Times (FT) said that the number of UK households in fuel poverty will more than double in January to at least 12mn unless the next prime minister takes “immediate” action to curb spiraling energy bills, a coalition of groups named “End Fuel Poverty” has warned.

It should be noted that Britain's Foreign Minister and a frontrunner in the UK’s leadership race, Liz Truss, wrote in the Sun newspaper in an article published late on Wednesday that “I will deliver "immediate support" to ensure people are not facing unaffordable fuel bills going into the winter.”

Also exerting downside pressure on the GBP/USD prices were firmer US data and hawkish Fed bets, not to forget the strong US Treasury yields.

That said, Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Also, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

Talking about data, US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Amid these plays, Wall Street closed mixed but the US 10-year Treasury yields rose to the highest levels since late June. More importantly, the 02-year counterpart jumped to the 15-year top. It should be noted that the CME’s FedWatch Tool signals a 72% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

On the other hand, the Bank of England’s (BOE) Decision Maker Panel survey of chief financial officers showed on Thursday that British businesses' expectations for consumer price inflation rose in August. Furthermore, a monthly survey from Citi and YouGov showed on Wednesday, per Reuters, that British households' expectations for average inflation over the next five to 10 years jumped to a record-high 4.8% in August, well above the Bank of England's 2% inflation target.

Moving on, the markets are likely to witness anxiety ahead of the key US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors. Should the job report print firmer data, the odds of witnessing further US dollar strength can’t be ruled out.

Also read: Nonfarm Payrolls Preview: Five reasons to expect a win-win release for the dollar

Technical analysis

Unless rising back beyond July’s low near 1.1760, GBP/USD remains vulnerable to refreshing the multi-year low marked in 2020 at around 1.1410.