GBP/USD loses 20-day SMA after US NFPs

• The Pound fell below the 20-day SMA towards the 1.2450 zone.
• The US created 339,000 new jobs in May, compared with an expected 190,000.
• US bond yields rose in reaction to the jobs numbers.

The GBP/USD pair fell more than 0.50% to a daily low of 1.2453 at the end of the week, following strong data from the US labor market, which indicates a possible reconsideration of further rate hikes by the Federal Reserve (Fed ). Consequently, the dollar strengthened on rising US bond yields, while sterling continued to come under selling pressure, while the UK economic calendar had nothing to offer.

The strength of the labor market caused markets to reconsider a possible rate hike by the Fed

The US Bureau of Labor Statistics revealed that US employment increased by 339,000 people, beating the consensus forecast of 190,000 people. However, the unemployment rate rose to 3.7% versus 3.5% forecast. Wage inflation, as measured by average hourly earnings, stood at 4.3% year-on-year, slightly below the 4.4% forecast.

Despite labor demand beginning to show signs of slowing, robust job growth and continued inflationary pressures are forcing the Fed to consider raising interest rates. This has translated into a rebound in US bond yields, reflecting growing market expectations of a 25 basis point hike at the next meeting in June. In this sense, the yield of US bonds is experiencing increases throughout the curve. The 10-year bond yield rose 2.33% to 3.68%. Similarly, the 2-year yield stands at 4.50%, up 4.69%, and the 5-year yield stands at 3.83%, up 3.53%.

However, according to CME’s FedWatch tool, markets continue to price in higher no-raise probabilities, although the case for a 25 basis point hike has strengthened. Before the meeting, the Federal Open Market Committee will know the inflation reading for May, which will finish shaping expectations for its next interest rate decision.

Levels to watch

GBP/USD maintains a slightly bearish short-term outlook, according to the daily chart. The Relative Strength Index (RSI) fell towards its midpoint, while the Moving Average Divergence (MACD) turned flat. However, the pair is still holding above the 100-day and 200-day SMAs, while the bulls are trying to retake the 20-day SMA at the 1.2460 area.

If the Pound falls, immediate support levels are seen in the area of ​​daily lows around 1.2350 and the 1.2400 level. Furthermore, to regain traction, the bulls need to consolidate the 20-day SMA at the 1.2461 zone. Above, resistances lie at 1.2480 and 1.2500.