- GBP/USD is set to end the week with heavy losses of 0.78%.
- US labor data poured a jug of cold water on recession fears ahead of next week’s CPI.
- BoE Pill: The bank will reach its inflation target, but “it will take some time”.
The pair GBP/USD hit a new weekly low of 1.2002 in reaction to a positive US jobs report, which allays US recession fears while raising the odds of further aggressive Fed tightening amid 9% inflation in the country.
During the day, GBP/USD reached a high around 1.2169, but, as mentioned, fell. The GBP/USD pair is still trading at 1.2078, shedding 0.67%, although some 70 points above the day’s low.
GBP/USD tumbled after the US data.
Sentiment remains mixed as most EU stocks closed lower while US stocks falter. On Friday, the Labor Department revealed that nonfarm payrolls for July added 528,000 jobs to the US economy, beating estimates of 250,000. Additional data from the US jobs report illustrates that the labor market remains tight, with the unemployment rate falling to 3.5% and median hourly earnings rising 0.5% mom, while on an annual basis, they increased by 5.2%.
On Thursday, Cleveland Fed President Loretta Mester maintained her hawkish stance. She said the rate path charted by June’s dot charts is “more or less correct,” while adding that a 75 basis point rate for September “is not unreasonable.”
Separately, Bank of England Chief Economist Huw Pill made a statement via Bloomberg. He said the BoE would return to its 2% inflation target, but added “it’s going to be a process, it’s going to take time, reflecting the magnitude of the shocks we’ve seen” on Friday. These remarks came a day after the “old lady” raised rates by 50 basis points, the biggest hike in 27 years, raising the Bank’s rate to 1.75%, and warned that the UK could enter a recession at End of the year.
With that said, GBP/USD is set to end the week with losses. The resilience shown by the US economy so far, with ISM PMIs keeping the strong in expansionary territory and a strong labor market, paints a positive picture for the USD. On the contrary, the scenario of stagflation that is looming in the United Kingdom, allows us to conclude that the weakness of the pound sterling could continue into next week.
What must be considered
Next week, the UK economic docket will feature the RICS house price balance as the only data that will move the market. In the United States, data on inflation, consumption and production indices, initial jobless claims and consumer sentiment from the University of Michigan for August will be released.
GBP/USD key technical levels
Source: Fx Street
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