GBP/USD falls to 4-week lows at 1.2059 after good US economic data.

• The pound sterling is not resisting the encouraging economic data from the United States.
• Data on US employment and services activity showed that the US economy remains strong despite the Federal Reserve’s tightening cycle.
• For the coming week, GBP/USD traders will be watching UK GDP and US Fed statements.

The GBP/USD nosedived and extended its losses beyond the 50 and 200 day EMA on Friday after a surprisingly strong employment report from the United States (US) raised speculation that the Fed Federal (Fed) could again raise rates above the signal of 25 basis points (bp) on Wednesday. At the time of writing, GBP/USD is trading at 1.2060 after reaching a daily high of 1.2265.

GBP/USD plunged after positive US economic data, justifying further Fed tightening

Investor sentiment deteriorated following the release of the January Nonfarm Payrolls report. The data showed the economy added 517,000 new jobs versus an estimated 200,000; consequently, the Unemployment Rate fell from 3.5% to 3.4%. Also, December data was revised up, meaning the US Federal Reserve still has some way to go to rein in stubbornly high inflation towards the 2% target.

Following the data, GBP/USD plunged from its daily highs at 1.2260 and fell 200 points towards the 1.2060 zone. Meanwhile, the Dollar Index, which measures the value of the greenback against a basket of six currencies, hit a fresh three-week high of 102.90, rising 0.94%.

Later, the Institute for Supply Management (ISM) revealed that activity in the service industry passed the expansion zone, driven by new orders, while prices paid moderated. The ISM Non-Manufacturing PMI rose to 55.2 last month, up from 49.2 in December and above the 50.4 forecast by analysts.

Earlier in the European session, the UK’s S&P Global/CIPS PMI services had its worst month in two years, falling to 48.7, from 49.9 in December, its lowest level since January 2021. Therefore The S&P Composite PMI, which combines manufacturing and services data, plunged to 48.5 in January from 49.0 last month.

What must be considered?

Next week’s UK economic calendar will include the MoM and Quarterly Monetary Policy and Gross Domestic Product (GDP) Report hearings. On the other hand, the US economic agenda will include appearances by Jerome Powell and John C. Williams, from the New York Federal Reserve. In addition, initial jobless claims and consumer sentiment from the University of Michigan (UM) will shed some light on the state of the US economy.

GBP/USD Key Technical Levels