GBP/USD Reverses Post-NFP Decline And Recovers To 1.2600 Region, Just Below Yearly High

In response to better-than-expected US monthly employment data, the GBP/USD pair falls to a new daily low, but finds support ahead of the mid-1.2500s. During the early North American session, spot prices recover to the 1.2585-1.2590 range and trade with a mildly bullish bias for the third consecutive day, just below today's nearly one-year high.

Following the release of the upbeat US NFP report, the US Dollar (USD) strengthens across the board, which proves to be a key factor operating as a headwind for the GBP/USD pair. In actuality, the US Bureau of Labor Statistics (BLS) reported that the US economy added 253K new positions in April, significantly more than the 179K expected and the downwardly revised reading for the previous month of 165K. Additional information revealed that the Unemployment Rate unexpectedly decreased to 3.4% from 3.5%, while Average Hourly Earnings increased to 4.4% from 4.2%.

As a result, the Federal Reserve (Fed) may be compelled to maintain higher interest rates for an extended period of time due to the optimistic data. This, in turn, drives US Treasury bond yields significantly higher, which strengthens the dollar and exerts some pressure on the GBP/USD pair. In spite of this, the risk-on impulse, as exemplified by a robust opening in the US equity markets, maintains a ceiling on the dollar. In addition, rising wagers on a 25 basis point (bps) rate rise by the Bank of England (BoE) help limit the downside for the major.

Consequently, next Thursday's highly anticipated BoE monetary policy meeting will continue to dominate market sentiment. Wednesday's release of the latest US consumer inflation data will serve as a guide for investors as they approach a crucial central bank event risk. This will be crucial in determining the near-term direction of the GBP/USD pair. Nonetheless, market prices are expected to increase for a third consecutive week.