The price of the GBP/USD currency pair reached the highest level of 1.2113, recovering from the psychological support level 1.1800 in the middle of last week's trading. The rebound came to the upside, as the highly dangerous US jobs report is mitigated by softer wage numbers. The GBP/USD pair closed the week's trading, stable around the 1.2032 level, waiting for anything new.
In general, the US dollar was under a lot of pressure in the wake of the recent US jobs report and the news of a US bank in financial difficulties, developments that indicate that the US Federal Reserve does not need to pursue significantly higher interest rates. Accordingly, bond yields fell, and the US dollar was softer against the pound, the euro and other major currencies after the US economy created more than 300,000 jobs, but the rate of increase in wages was weaker than expected.
Official figures released last Friday confirm that the headline of job increases was exceptionally hot, but there was little support for the dollar and yields due to weak wage numbers and the higher mark in the unemployment rate. The rise in the unemployment rate, amidst an increase in job creation, indicates an increase in the supply of labor for the US economy.
This also explains the wage figures received.
In short, the data doesn't quite align with recent concerns that a tight labor market could lead to above-target inflation rates, and thus dollar exchange rates have plummeted. Thus, the US Federal Reserve can moderate its ambitions when it comes to raising interest rates much more than current levels. The US dollar rose earlier in the week after Federal Reserve Chairman Jerome Powell said US interest rates may have to rise more than previously expected, but Friday's data somewhat contradicts that view.
The US dollar was actually the clear underperformer on March 10, as it fell against all of the major currencies. The US jobs report comes amid a significant decline in banking stocks as investors fear signs of distress in the sector, something that could convince the Federal Reserve that it has done enough on interest rates.
The Silicon Valley bank sent shock waves through the global banking sector after it went to the market in search of new financing, after the losses incurred by its main investment portfolio. These losses are related to the underperformance of the technology sector in the current environment of rising interest rates. Investors are betting that the developments, when combined with current labor market dynamics, can convince the Fed that now is not the time to step forward in accelerating interest rates.
Thus the recent surge in dollar strength may be due to the temporary pause.
For his part, James Knightley, chief international economist at ING Bank, says, “We have gone through the most aggressive period of monetary tightening in 40 years, and our long-term concern has been that the more aggressively and faster you go into what we might call “restrictive” territory, the less control. On the outcome,” he added, “we are constantly looking for signs of stress and clear concerns about the stability of Silicon Valley Bank (SVB) and perhaps other institutions are making investors anxious at the moment.”
Technical analysis of the GBP/USD pair:
- On the near term, according to the performance on the hourly chart, it appears that the GBP/USD is trading within a bullish channel formation.
- This indicates a significant short-term bearish bias in market sentiment.
- Therefore, the bulls are looking to ride the current rebound towards 1.1872 or higher to the resistance at 1.1890.
- On the other hand, the bears will target pullback profits around 1.1823 or below at the support 1.1800.
On the long term, and according to the performance on the daily chart, it appears that the GBP/USD is trading within a bearish channel formation. This indicates a significant long-term bearish bias in market sentiment. Therefore, the bears will target extended declines around 1.1689 or below support at 1.1545. On the other hand, the bulls will be looking to pounce on profits around 1.1994 or higher at the 1.2146 resistance.
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