GBP/USD hangs near weekly low, below mid-1.3400s as traders await US NFP report

GBP/USD stalls a three-day-old downtrend as traders turn cautious ahead of the US NFP report.
The data will influence the Fed’s rate-cut path, providing a fresh impetus to the USD and the pair.
The divergent Fed-BoE policy expectations warrant caution before placing aggressive bearish bets.

Haresh Menghani FXStreet

The GBP/USD pair is seen consolidating in a narrow range and trading around the 1.3435 region during the Asian session on Friday, just above the weekly low retested the previous day. Traders now seem reluctant and opt to move to the sidelines ahead of the release of the highly anticipated US Nonfarm Payrolls (NFP) report later today, before placing fresh directional bets.

The crucial US employment details would provide more cues about the Federal Reserve's (Fed) rate-cut path, which, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics and drive the GBP/USD pair. Heading into the key data risk, rising bets for further policy easing by the Fed, along with a stable performance around the equity markets, keep a lid on the recent USD move higher to a one-month peak and act as a tailwind for the currency pair.

Moreover, the Bank of England's (BoE) less dovish message, suggesting that interest rates are getting closer to neutral, might continue to act as a tailwind for the British Pound (GBP) and further help limit the downside for the GBP/USD pair. Hence, it will be prudent to wait for strong follow-through selling before positioning for an extension of the pair's retracement slide from the 1.3565-1.3570 region, or the highest level since September 18, touched during the first of this week.

At current levels, spot prices remain on track to end the week on a flattish note. The aforementioned fundamental backdrop, however, seems tilted in favor of bullish traders and backs the case for the emergence of some dip-buying at lower levels. Even from a technical perspective, a sustained break and acceptance below the 1.3400 round-figure mark is needed to back the case for any further depreciating move for the GBP/USD pair, warranting some caution for aggressive bears.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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