- Data revealing the sharpest drop in UK construction activity since 2020.
- The Bank of England is nearing the end of its tightening cycle.
- Recent strength in the US economy has put pressure on the pound.
The GBP/USD price analysis is optimistic as the pound rose slightly as the dollar weakened ahead of the US nonfarm payrolls report.
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The pound fell against the dollar in the previous session following data revealing the sharpest drop in UK construction activity since 2020. However, it recovered amid broad dollar weakness.
Moreover, the pound experienced a brief respite earlier this week when bond prices stabilized. However, the upcoming release of US nonfarm payroll data, scheduled for 12:30 GMT on Friday, could alter this situation.
Francesco Pesole, an FX strategist at ING, noted, “The temporary halt in the bond sell-off is allowing some currencies to recover against the dollar. Nevertheless, today’s US payrolls report is the most significant event of the week. Therefore, a robust outcome could quickly shift market sentiment towards a bearish outlook and revive strong demand for the dollar.”
Recent strength in the US economy has led investors to speculate about further US interest rate increases, putting pressure on the pound.
In contrast, the Bank of England appears to be getting to the end of its tightening cycle. While money market traders are currently pricing in a roughly 30% probability of a 25-basis-point increase in the Bank Rate at the November meeting, this would likely be the last hike in the current cycle.
However, these expectations are significantly lower than those held three months ago. Traders had anticipated interest rates peaking at over 6% by the middle of the following year.
GBP/USD key events today
The US will release employment data, including:
- The nonfarm payrolls.
- The average hourly earnings.
- The unemployment rate.
GBP/USD technical price analysis: Bulls confronting key 1.2200 resistance.
The pound has recovered on the 4-hour chart and is trading above the 30-SMA. Bulls have taken over and are currently challenging the 1.2200 resistance level. Moreover, the RSI supports bullish momentum above 50.
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The bearish trend paused when the price got to the 1.2100 support level. Although bears punctured the level, they could not sustain the move lower, allowing bulls to take control. If bulls break above the 1.2200 resistance level, the price will retest 1.2302.
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