GBP/USD remains on the defensive below 1.2200, looks to US NFP report for fresh impetus

• GBP/USD struggles to capitalize on the previous day’s positive move to over a one-week high.
• Traders opt to move to the sidelines and look to the US monthly jobs report for a fresh impetus.
• The BoE’s bleak economic outlook favours bears and supports prospects for additional losses.

The GBP/USD pair ticks lower during the Asian session on Friday and erodes a part of the previous day's positive move to the 1.2225 region, or a one-and-half-week high. Spot prices currently trade just below the 1.2200 round-figure mark as traders now look forward to the release of the US monthly employment details for some meaningful impetus.

The popularly known NFP report is expected to show that the US economy added 180K jobs in October, down sharply from the 336K in the previous month, while the jobless rate is anticipated to hold steady at 3.8%. Apart from this, the market focus will be on Average Hourly Earnings, which are seen rising 0.3% MoM and ease to a 4% yearly rate from 4.2% in September. Federal Reserve (Fed) Chair Jerome Powell earlier this week noted that some slowing in the labour market will likely need to happen in order for inflation to continue its downward trajectory. Hence, any positive surprise could lift bets for one more rate hike by the Federal Reserve (Fed) in December or January, which, in turn, should provide a goodish lift to the US Dollar (USD) and prompt fresh selling around the GBP/USD pair.

In contrast, even a slight disappointment, especially signs of slowing wage growth, will reaffirm market expectations that the Fed is unlikely to hike interest rates any further and could possibly start cutting rates in June 2024. This could lead to a further decline in the US Treasury bond yields and undermine the Greenback. The GBP/USD pair, however, might fail to attract buyers in the wake of the Bank of England's (BoE) bleak economic outlook, saying that the economy risks falling into recession next year. The BoE did signal that it intends to keep interest rates high for an extended period to tackle stubborn inflationary pressures, though the markets have now fully priced in a 25 bps rate cut by August 2024. This suggests that any immediate market reaction to weaker US jobs data is more likely to be limited.

Nevertheless, the GBP/USD pair seems poised to register modest weekly gains, though remains confined in a familiar range held over the past month or so. The recent price action, meanwhile, might still be categorized as a bearish consolidation phase and validates a near-term negative outlook. This, in turn, suggests that the path of least resistance for spot prices is to the downside and warrants some caution before positioning for any meaningful appreciating move.

Technical levels to watch