GBPUSD appreciates more and tests levels beyond 1.1300

• Sterling Trims Losses After Four Days of Selling; test levels above 1.1300.
• A mixed US NFP report sends the dollar lower.
• GBPUSD is expected to depreciate further in the short term — UOB.

The GBP closed the week strong, appreciating more than 1% on the day, helped by a general weakness in the US dollar amid a positive mood in the markets. The pair has extended its rebound from Thursday’s lows of 1.1150 to hit session highs above 1.1300, paring losses after a strong sell-off in the previous four days.

US non-farm payrolls present a mixed picture

Nonfarm payrolls rose above expectations in October with a reading of 261,000, beating the consensus of 200,000 and showing that the US labor market remains in good health. Additionally, September data has been revised up to an increase of 315,000 from the previously estimated 264,000.

However, the unemployment rate has risen to 3.7% from 3.5% in September, and hourly wages have slowed to 4.7% from 5%. These figures suggest that labor market tightness may be starting to ease, which has eased expectations of more aggressive tightening by the Federal Reserve, thus increasing downward pressure on the dollar.

The dollar had rallied in previous sessions following hawkish comments from Fed Chairman Powell, who reiterated the need for further monetary tightening following the Fed’s monetary policy decision.

At the other extreme, the pound has been on the defensive for the past few days and particularly weak following the Bank of England’s moderate hike on Thursday. The bank raised rates by 0.75%, as expected, but BoE Chairman Bailey signaled a softer pace of tightening in coming months, accelerating the pound’s sell-off.

GBP/USD will face short-term downward pressure — HSBC

HSBC FX analysts are skeptical about the sustainability of the pound’s current rally and see the pair returning to the downtrend shortly: “The BoE noted that while further rate hikes would be required, this would mean in ultimately go “to a lower peak than what has been quoted in the financial market” This is in direct contrast to the fedwhich made the observation that the guidance around the terminal rate would likely need to move higher (…) We see GBPUSD moving lower towards the end of 2022, given this ongoing cyclical divergence between the economies of US and UK rate profiles.”

Technical levels to watch