GBP/USD Reflects Pre-NFP Anxiety as it Hovers Near 1.2530 Level

Posted Friday, June 2, 2023 by
Arslan Butt • 2 min read

The GBP/USD pair exhibits a cautious tone on early Friday, oscillating around the 1.2530 level. This price action validates the recent challenges to the upside momentum observed from London. Notably, the increased probability of future monetary policy divergence between the Bank of England (BoE) and the US Federal Reserve (Fed) appears to have supported the recent upward movement of the British Pound.

However, concerns about higher interest rates negatively impacting domestic mergers and acquisitions, as well as overall economic performance, have weighed on British dealmakers recently. The Times reported that merger and acquisition activity in Britain is currently at its lowest level in seven years, reflecting caution regarding the economic outlook.

On the other hand, a pause in yields and indecisive stock futures has provided some respite for GBP/USD buyers.

Positive UK data, inflation indications, and hawkish comments from BoE officials have favored the British Pound throughout the week. The UK S&P Global/CIPS Manufacturing PMI for May improved to 47.1, surpassing the initial estimates of 46.9. The Bank of England’s Monthly Decision Maker Panel (DMP) survey revealed that businesses in the UK expect the year-ahead Consumer Price Index (CPI) to be at 5.9% in May, up from 5.6% in April.

On the US front, the ADP Employment Change for May eased to 278,000 from a revised figure of 291,000, but still exceeded market expectations of 170,000. Other data, such as Initial Jobless Claims and ISM Manufacturing PMI, showed mixed results. Federal Reserve Bank of St. Louis President James Bullard acknowledged that continued vigilance is required despite prospects for continued disinflation being good but not guaranteed.

Consequently, the market’s pricing of a Fed rate hike declined, which weighed on the US Dollar Index (DXY).

In summary, the GBP/USD pair is expected to remain resilient amid growing expectations of stronger rate hikes by the BoE compared to the Fed’s policy pivot. However, the direction will largely depend on the US employment data for May.

GBP/USD Technical Outlook:

The GBP/USD pair witnessed a strong rally, breaking above the 1.2470 level and settling above it. This has interrupted the bearish correctional scenario and suggests a resurgence of the main bullish trend, with potential gains targeting 1.2630 and 1.2680.

Therefore, further upward movement is anticipated in the upcoming sessions, supported by the EMA50 indicator. It’s worth noting that a break below 1.2470 would halt the bullish wave and redirect the price towards the correctional bearish path.

The expected trading range for today is between 1.2470 support and 1.2640 resistance.

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