GBP/USD rose during most of last week's trading, but its recovery stalled on Friday. The risk now is consolidation leading to a retest of technical support near and around the 1.23 level. Since the start of this week's trading, the price of the sterling / dollar is stable around the level of 1.2450, waiting for a strong momentum to confirm breaking the general bearish trend. By the end of last week's trading, the bulls tried to control, but the gains stopped at the resistance level of 1.2540.
Overall, the US dollar was sold off broadly at times last week while the British pound also appeared to be in demand after what may have been the result of last week's strong increase in market expectations for the Bank of England (BoE) bank rate. However, the GBP price turned away from the 1.25 resistance on Friday as US government bond yields rose after reports that US non-farm payrolls rose much more than expected for the past month with potential repercussions on the US Federal Reserve's policy outlook.
Commenting on this, Tom Kenny, chief economist at ANZ, wrote in a research briefing, “There was something for everyone in the US jobs report for May. Fed hawks cited above-trend hiring of 339k as the reason for the rally. "The Fed moderates and doves have been pointing to the largest percentage point monthly increase in the unemployment rate (0.3 percentage point to 4.7%) since 2010, excluding COVID-19, as a reason to skip or pause," he added.
Friday's US jobs report came after a month of public comments in which Federal Reserve officials presented and mostly supported the idea of leaving US interest rates unchanged for the next week for the first time in over a year while awaiting more information on the economy's performance. Financial markets have continued to assume the possibility of another rate hike in either June or July, however, and whether that assumption survives this week's US economic data show, next week's policy event will be important to the prospects for the pound's recovery against the dollar.
“June policy decisions (skipping the Fed, the European Central Bank, the Bank of England, the Bank of Canada, maybe even a modest hawkishness from the Bank of Japan) should to work against the US dollar.” "The BoE's tightening bets eased slightly during the week, but the prospect of significant policy tightening for the Federal Reserve and the European Central Bank over the next few months remains an important source of support for the pound," he added.
Overall, this week's calendar offers few key appointments for the US and UK economies, but Monday's release of the Institute for Supply Management Services PMI for May could influence US interest rates while monetary policy decisions in Australia and Canada could also influence the dollar.
Conversely, the pound is likely to benefit if Australian or Canadian interest rate decisions dampen the US dollar or if the US services PMI undermines prospects for another rate hike from the Fed but after that point, economic developments in the UK will become relevant. It comes after Office for National Statistics data late last month indicated that domestic inflation pressures strengthened in the UK during April when they were widely expected to moderate, prompting a strong upward revision of market expectations for the BoE's interest rate.
The rally saw the expected peak of the bank rate hike from below 4.75% to around 5.5% and fully offset the previous dollar's yield advantage over the pound in the process, although some say market expectations have moved too far and left the pound-dollar rate weak.
Sterling forecast against the dollar today:
- According to the performance on the daily chart below, the price of the GBP/USD currency pair is still trying to rebound to the upside to break the recent bearish outlook.
- This may happen if the currency pair moves towards the resistance levels 1.2550 and 1.2630, respectively.
- On the other hand, and over the same period of time, breaking the support level at 1.2360 will be important to confirm the strength of the bears' control and prepare for a stronger bearish move.
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