GBP/USD pulls back from multi-day top as traders gear up for month-start economics

  • GBP/USD awaits early-month data from the US/UK to extend the latest rise beyond eight-day high.
  • UK political plays seem to favor the PM Johnson while Brexit headlines are a few.
  • Greenback bears catch a breath after heaviest monthly declines since January 2018.

With the last month proved to be the worst for the US Dollar Index (DXY) since January 2018, greenback traders await month-start catalysts for fresh directions. In doing so, the GBP/USD pair, which rallied to the highest since October 22 the previous day, consolidates recent gains to 1.2930 by the press time of the Asian session on Friday.

The US Dollar (USD) dropped across the board on Thursday as the Federal Reserve’s third back-to-back rate cut and receding odds of any strong trade ties between the United States (US) and China joined mixed data from the US.

The British Pound (GBP), on the other hand, benefited from increasing odds of the United Kingdom’s (UK) present Prime Minister (PM) Boris Johnson to hold on to his position after a general election in December. Also increasing the pair’s strength were expectations that the UK PM has strong ties with the US and can be relied upon for good trade relations in future.

During early-day, investors stop extending the previous momentum as the month-start data flow is yet to begin while risk aversion stands tall amid the US announcing fresh sanctions on Iran and North Korea’s another round of test-firing.

Among the statistics, October month Market Manufacturing Purchasing Manager Index (PMI) from the UK and employment stats, ISM Manufacturing PMI from the US will be the key to watch. About the UK data, TD securities say, “We look for the manufacturing PMI to rise from 48.3 to 48.9 in October (mkt 48.2), supported by inventory building ahead of the (at the time of the survey) Brexit deadline of 31 October. Details will likely to continue to be soft as uncertainty drags on, and we'll be watching particularly closely to see if the labor market weakness that was highlighted in September continues into October.”

Westpac has a different story, concerning the US Nonfarm Payrolls (NFP), “US Oct non-farm payrolls are expected to increase by 85k with the General Motors strike and reduction in census workers both a drag on headline employment gains. The unemployment rate is seen to edge back up to 3.6% from a 50 year low 3.5%, and average hourly earnings growth is anticipated to stabilize at 3.0%yr after Sep’s abrupt fall to 2.9%yr from 3.2%yr in Aug.”

Technical Analysis

While 1.3000 and the previous month high around 1.3015 hold the key to pair’s rise towards May month top surrounding 1.3180, pair’s declines below June top close to 1.2780 could trigger a fresh downside.

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