The Pound Sterling (GBP) remains in a tight range near 1.2800 against the US Dollar (USD) during Friday’s London session. The GBP/USD pair is seeking direction as investors eagerly await the United States (US) Nonfarm Payrolls (NFP) report for May, expected to provide crucial insights into the health of the US labor market.
Market Anticipation of US NFP Report
The forthcoming employment report is forecasted to reveal an addition of 185,000 payrolls, up from the 175,000 jobs added in April. The Unemployment Rate is anticipated to remain unchanged at 3.9%. Additionally, investors are closely monitoring the Average Hourly Earnings data, which is projected to show a steady annual growth of 3.9% and a monthly increase of 0.3%, up from the previous 0.2% rise.
Stronger-than-expected wage growth and payroll data could diminish expectations for the Federal Reserve (Fed) to begin lowering interest rates from the September meeting. Conversely, weaker figures might bolster such expectations.
Daily Digest: Market Movers
The Pound Sterling is consolidating near 1.2800 against the US Dollar as the market awaits the US NFP report, which will likely impact speculation regarding Fed rate cuts in September. The official employment data will reflect the effects of the Fed’s restrictive monetary policies on labor demand.
Recent labor market indicators suggest normalizing job conditions. The US JOLTS Job Openings data for April and the ADP Employment Change for May both showed lower-than-expected figures. Additionally, the US Department of Labor reported that Initial Jobless Claims for the week ending May 31 increased more than anticipated, indicating a softening labor market.
Fed Rate Cut Speculation
Growing doubts about the strength of the US job market have heightened market speculation that the Fed may begin lowering its key borrowing rates in September. The CME FedWatch tool indicates a 68% probability of rate cuts in that month, up from 54.5% a week ago.
UK Economic Indicators
In the UK, the Pound Sterling’s movement will be influenced by the Employment data for the February-April period, scheduled for release on Tuesday. The number of employed people in the UK has declined for three consecutive periods. Further indications of layoffs could negatively impact the Pound Sterling by increasing bets on early rate cuts by the Bank of England (BoE).
Investors will also focus on the UK Average Earnings data, a critical measure of wage growth. The robust wage growth in the UK has been a significant factor in driving high service inflation, posing a challenge to achieving the 2% inflation target.
Technical Analysis
The Pound Sterling is trading within Thursday’s range ahead of the US NFP data for May. The GBP/USD pair is struggling to break decisively above 1.2800. However, the near-term outlook for the Cable remains positive as it trades above 1.2770, the 78.6% Fibonacci retracement support (from the March 8 high of 1.2900 to the April 22 low of 1.2300).
The bullish trajectory is supported by the 20-day and 50-day Exponential Moving Averages (EMA) at 1.2710 and 1.2650, respectively, which are trending higher. The 14-period Relative Strength Index (RSI) has shifted into the 40.00-60.00 range, indicating an upward momentum.
Conclusion
As the market braces for the US NFP report, the GBP/USD pair remains steady near 1.2800. The outcome of the employment data will likely shape market expectations regarding Fed rate cuts and influence the Pound Sterling’s direction in the coming days.
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