GBP/USD Price Forecast: Bulls turn cautious as 1.3550 cap gains ahead of US NFP
- GBP/USD gains positive traction for the second straight day, though it lacks follow-through.
- The USD edges higher amid some repositioning ahead of the US NFP, capping spot prices.
- The bullish technical setup suggests that the path of least resistance remains to the upside.
The GBP/USD pair attracts some buyers for the second straight day, though it lacks follow-through and remains capped near mid-1.3500s through the early European session on Friday. Spot prices, for now, seem to have stalled the recovery from a nearly three-week low, touched on Wednesday, as traders keenly await the release of the US Nonfarm Payrolls (NFP).
The closely watched US monthly employment details will be looked upon for more cues about the US Federal Reserve's (Fed) future policy path, which, in turn, will drive the US Dollar (USD) and provide a fresh impetus to the GBP/USD pair. Heading into the key data risk, some repositioning trade helps the Greenback recover part of the previous day's heavy losses to over a one-week low and acts as a headwind for the currency pair.
Apart from this, persistent geopolitical uncertainties amid renewed US-Iran hostilities and clashes over the Strait of Hormuz turn out to be another factor underpinning the safe-haven USD. However, reduced bets for a September Fed rate hike, along with soft US bond yields, hold back USD bulls from placing aggressive bets and might act as a tailwind for the GBP/USD pair, warranting caution before positioning for any meaningful downside.
From a technical perspective, the GBP/USD pair maintains a mild bullish bias above the 200-period Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibonacci retracement of the July-August rally. Moreover, momentum indicators are constructive, with the Relative Strength Index hovering just above the neutral 50 level and the Moving Average Convergence Divergence (MACD) line sitting above the signal line in positive territory.
This hints that the upside pressure is gradually building as the 38.2% Fibo. at 1.3525 turns into nearby support. This is followed by the 200-period SMA around 1.3490 and the 50.0% retracement near 1.3476, with deeper cushions at the 61.8% and 78.6% levels at 1.3428 and 1.3359, respectively. On the topside, immediate resistance emerges at the 23.6% Fibo. at 1.3584, ahead of a more significant hurdle at the prior swing high region around 1.3681.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
GBP/USD 4-hour chart
Nonfarm Payrolls FAQs
What are Nonfarm Payrolls?
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
How does Nonfarm Payrolls influence the Federal Reserve monetary policy decisions?
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
How does Nonfarm Payrolls affect the US Dollar?
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
How does Nonfarm Payrolls affect Gold?
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Sometimes Nonfarm Payrolls trigger an opposite reaction than what the market expects. Why is that?
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.