GBPUSD appreciates further and tests levels beyond 1.1300

The pound is closing the week on a strong note, appreciating beyond 1% on the day, favored by a broad based US dollar weakness amid a positive market mood. The pair has extended its rebound from 1.1150 lows on Thursday, to hit session highs past 1.1300, trimming losses following a sharp sell-off over the previous four days.

US Non-Farm Payrolls paint a mixed picture

Non-Farm employment has increased above expectations in October with a 261K reading, beating the 200K consensus and showing that the US labor market remains in good health. Furthermore, September’s data have been revised to a 315K increment from the 264K previously estimated.

The unemployment rate, however, has increased to 3.7% from 3.5% in September, and the hourly wages have slowed down to 4.7% from 5%. These figures suggest that the tightness of the labor market might be starting to moderate, which has eased expectations of more aggressive tightening by the Federal Reserve, thus increasing downward pressure on the USD.

The greenback had rallied over the previous sessions following the hawkish comments by Fed President Powell, who reiterated the need for further monetary tightening after the bank’s monetary policy decision.

On the other end, the pound has been on the defensive over the previous days and particularly weak following the dovish hike by the Bank of England on Thursday. The bank hiked rates by 0.75% as expected, but BoE President Bailey signaled to a softer tightening pace over the next months, which accelerated the pound’s sell-off.

GBP/USD to face downward pressure over the near term – HSBC

FX analysts at HSBC are skeptical about the sustainability of the current pound rally and see the pair resuming the downtrend soon: “The BoE noted that, although further rate hikes would be required, this would ultimately mean going ‘to a peak lower than priced into financial market’. This is in direct contrast to the Fed which made the observation that guidance around the terminal rate would likely need to move higher (…) We see GBPUSD moving lower into year-end 2022, given this ongoing cyclical divergence between the US and UK economies and rate profiles.”

Technical levels to watch