GBP/USD Maintains Its Defensive Stance Below 1.2200, Awaiting The US NFP Report For Renewed Impetus

During the Asian session on Friday, the GBP/USD pair edges lower and erodes a portion of the previous day's positive movement to the 1.2225 region, which represents a one-and-a-half-week high. At present, spot prices are hovering just below the round-figure threshold of 1.2200, as investors eagerly await the monthly employment report from the United States, which is expected to provide significant impetus.

The widely recognised NFP report is anticipated to reveal that the United States economy created 180K jobs in October, a significant decrease from the 336K added the previous month. The unemployment rate is expected to remain unchanged at 3.8%. In addition, the average hourly wage will be the subject of market attention; it is anticipated to increase by 0.3% month-over-month and decelerate to 4% annually from 4.2% in September. Jerome Powell, chairman of the Federal Reserve (Fed), stated earlier this week that a labour market slowdown is likely necessary for inflation to maintain its downward trend. Therefore, a favourable outcome could increase expectations for a further interest rate increase by the Federal Reserve (Fed) in December or January. This, in turn, could benefit the US Dollar (USD) and incite additional selling in the vicinity of the GBP/USD pair.

On the contrary, even a marginal setback, particularly indications of decelerated wage growth, would reassert market anticipations that the Federal Reserve is improbable to proceed with additional interest rate hikes and may potentially initiate rate reductions in June 2024. This may result in additional US Treasury bond yield declines, which would be detrimental to the greenback. In contrast, the GBP/USD pair may struggle to appeal to investors following the Bank of England's (BoE) pessimistic economic forecast, which indicates that the nation's economy could potentially enter a recession in the coming year. While the BoE did indicate its intention to maintain high interest rates for a prolonged duration in order to combat persistent inflationary pressures, a 25 basis point (bps) reduction in rates by August 2024 is now entirely priced in by the markets. This indicates that the likelihood of an immediate market reaction to weakened US employment data is diminished.

Despite this, the GBP/USD pair appears poised to record modest weekly gains, albeit within a range it has maintained for the past month or so. In the interim, the current price movement could potentially be classified as a phase of bearish consolidation, thereby confirming an immediate pessimistic forecast. This implies that the spot price path of least resistance is downward, which calls for prudence prior to making any substantial upward positioning decisions.