GBP/USD Analysis: Affected by Investor and Market Sentiments

The pound sterling showed remarkable resilience as the US dollar was performing well but reversed sharply after the release of the US non-farm payrolls report. This was a counterintuitive move – strong employment data supports higher interest rates rather than cuts. Consequently, the price of the British pound against the US dollar “GBP/USD” declined from the resistance level of 1.2771 on Friday to the support level of 1.2611. Eventually, that’s occur after the announcement of stronger than all expectations for US jobs numbers and settled around the level of 1.2720 at the beginning of this week’s trading. 

Also, Stocks were higher when the obvious move was down. The big moves leading up to the release could explain Friday's price action. Friday's session was volatile due to the release of the important US jobs report. During the European session, the price of the US dollar rose and reached its highest level on Friday, more than 2.5% from its lowest level in late December. Meanwhile, stocks fell again. However, these moves were reversed after the release of the US non-farm payrolls report, and the dollar returned to the red zone during the session, while US stocks were expected to open slightly higher. Obviously, this may be counterintuitive as most of the metrics in the jobs report beat estimates and this reduces the odds of a rate cut in March. 

Recently, the main US NFP jobs number came in at 216 thousand, while it was expected to reach only 168 thousand. Wage growth (AHE) remained at 0.4%, above estimates of 0.3%, while the unemployment rate remained at 3.7%, below expectations of 3.8%. Generally, a rise in the dollar and a fall in the stock market would be the obvious reaction to this hotter-than-expected report. However, the big moves this week leading up to the release have already generated some strength and may have led to moves in the opposite direction. 

The week before last, the probability of a rate hike at the FOMC meeting in March was above 90% and was stable at only 9.77%. Moreover, that had risen to 29% by Friday as cautious bets eased. To illustrate how cautious the market had become at the end of December, the odds of achieving 50 basis points in March were as high as 16%. This was only possible if the economy collapsed quickly. Finally, The US jobs report released on Friday indicates that this will not happen. Likewise, the odds of a US interest rate hike in March are likely to decline further now, although this is not immediately evident in the movement of dollar or stock prices on Friday. 

For its part, ING believes that raising US interest rates in March is too early because the Federal Reserve is under little pressure to make any hasty policy changes. They say a cut in May is most likely. Although there is nothing alarming in this jobs report or any recent data, it is clear that the job market is returning to normal. If this happens too quickly, it could raise concerns about a hard landing, and it is clear that the data is not all rosy, As indicated by ING Bank. 

Ultimately, if unemployment claims start to rise above 250,000 in weekly releases, the focus could shift back to a potential recession. For now, there are only minor concerns. 

GBPUSD Expectations and Analysis Today: 

According to the performance on the daily chart above, the price of the British pound against the US dollar GBP/USD is on its upward path and may remain so as long as it remains stable above the 1.2700 resistance. Therefore, If the bulls gain additional momentum from improved investor sentiment and the performance of the financial markets, there may be an opportunity to move towards levels Higher resistance, the closest ones currently are 1.2775 and 1.2830, respectively. Technically, the last level is important for the possibility of moving towards the psychological resistance 1.3000 at a later time. On the other hand, over the same period, the support will be 1.2630, ending the current upward expectations. This week, all eyes on the currency pair will be focused on the announcement of the US inflation numbers and the British economic growth reading.