GBP/USD traders getting set for NFP, the straw to break the camel's back

At 1.2365, the pound is flat vs. the US dollar but remains in highly bearish territory having collapsed below vital daily support on Thursday. GBP/USD fell from a high of 1.2634 to a low of 1.2325 on a combination of stark warnings from the Bank of England, poor global economic data and the prospects of an aggressive Federal Reserve. 

The Bank of England hiked rates by 25bps, but  ''shockingly, the BoE is now forecasting inflation at 10.25% YoY in Q4 this year, up from its earlier estimate of 5.75%, on utility costs,'' analysts at ANZ Bank explained. 

''In a particularly pointed example of what is a common global theme, inflation is causing a “real income shock” – with average earnings growth not keeping pace with inflation, real personal consumption will inevitably slow sharply.''

''In fact, the BoE forecast all components of domestic demand to decelerate throughout this year and into next.'' 

Against a backdrop of worsening PMIs out of China and Germany’s factory orders fell a colossal 4.7% in March vs. -1.1% expected, the US dollar thrived in anticipation of inflows to the US economy that has fared better by comparison to elsewhere. 

Eyes on NFP

This leaves the Nonfarm Payrolls as a critical event. For instance, ANZ Bank explained, ''whilst the Fed is not currently considering a 75bps rate increase, that guidance is based on expectations that the trend increase in monthly Nonfarm payrolls will slow and core inflation is stabilising.

But there are no guarantees at all that that will be the case. Demand for labour in the US remains very strong and core services inflation is rising steadily. The April Nonfarm payroll and employment reports tomorrow night, therefore, carry a lot of significance.''