The GBP/USD currency pair has exhibited some choppy trading this week, reflecting the interplay of various factors:
Strong US Jobs Data Initially Pressures GBP/USD:
- A stronger-than-anticipated Nonfarm Payrolls (NFP) report from the US on Wednesday strengthened the US Dollar (USD).
- This positive data release fueled concerns about a potential delay in interest rate cuts by the Federal Reserve (Fed), leading to a decline in the GBP/USD.
Technical Indicators Offer Conflicting Signals:
- The Relative Strength Index (RSI) hovers slightly above 50, indicating neither a clear overbought nor oversold condition for the GBP/USD.
- While the pair closed above the key 200-day Simple Moving Average (SMA) for two consecutive days earlier this week, it failed to break above the 100-day SMA.
Resistance and Support Levels to Watch:
- A breakout above 1.2670 could attract technical buyers, potentially pushing the pair towards 1.2710 (Fibonacci 50% retracement) and 1.2750 (Fibonacci 61.8% retracement).
- On the downside, 1.2620 (Fibonacci 23.6% retracement) and 1.2590 (200-day SMA) could act as potential support zones.
Market Awaits Friday’s US Jobs Report:
- Today’s release of the US jobs report for March is the next major event impacting the currency market.
- Nonfarm Payrolls are expected to increase by 200,000, following a strong figure of 275,000 in February.
- A robust jobs report could further strengthen the USD and put downward pressure on the GBP/USD.
- Conversely, a disappointing report or significant revisions to prior data could weaken the USD and benefit the GBP/USD.
Investor Focus on Wage Growth:
- Beyond the headline NFP figure, investors will be paying close attention to wage growth data within the report.
- Average Hourly Earnings are projected to rise 4.1% year-on-year, which is lower than February’s 4.3% increase.
- Lower wage inflation could alleviate concerns about persistent inflation and potentially limit the USD’s upside.
Risk Sentiment and Fed Policy Pivot:
- An improvement in overall risk sentiment on Thursday helped the GBP/USD recover some ground.
- Hawkish comments from some Fed officials earlier this week dampened expectations of a swift policy pivot towards rate cuts by the Fed, but the overall outlook remains uncertain.
Overall, the GBP/USD’s near-term direction will likely be determined by the outcome of the US jobs report. A strong report combined with continued hawkish signals from the Fed could weaken the GBP/USD. However, a weaker jobs report or dovish wage growth data, coupled with a shift in risk sentiment, could provide some support for the GBP/USD.