Sterling receives support from US soft NFP

• Sterling resumed its weekly recovery above the 1.3200 level.
• GBP/USD remains poised for further advances amid dollar weakness.
• Sterling is expected to closely track the key UK releases.

After a dip below key 1.3100 support earlier in the week, the British Pound (GBP) managed to regain its balance against the US Dollar (USD), lifting GBP/USD back north of the 1.3200 barrier, shortly time after US non-farm payrolls missed expectations on Friday. (+142,000 jobs). While that move subsequently fizzled out, it wasn’t enough to reverse Cable’s positive weekly performance.

The pound continued to look at the dynamics of the dollar

GBP/USD reversed the previous week’s downtrend on the greenback’s persistent bearish tone. The US dollar remained under pressure on the back of a renewed and aggressive easing narrative from the Federal Reserve (Fed), which now includes a potential 50 basis point interest rate cut at its September 18 meeting.

The greenback’s stance remained buoyed by dovish remarks from Fed Chairman Jerome Powell at the Jackson Hole Symposium in late August. His views were later reinforced by many Fed officials, who appear to have called for interest rate cuts to begin as early as this month.

The BoE thinks otherwise

Following the Bank of England’s (BoE) rate cut on August 1, Governor Andrew Bailey said it remained uncertain whether lingering elements of inflation were aligned with keeping price rises at the bank’s 2% target. He also questioned whether the current decline in inflation persistence has largely been secured as the global shocks that previously drove inflation subside, or whether the UK economy will need a period of easing.

Moreover, in his speech in Jackson Hole, Bailey said that he believes that long-term inflationary pressures are easing. However, he stressed that further interest rate cuts would not be made in a hurry as it was still too early to be sure that inflation was fully under control.

A survey published on Thursday indicated that British companies are expected to increase their selling prices by the smallest margin in nearly three years, while wage growth shows no sign of slowing. This mixed news poses a challenge for BoE officials assessing inflationary pressures.

Indeed, according to the BoE’s Decision Maker Panel (DMP), closely monitored by the Monetary Policy Committee, businesses in the three months to August anticipated a 3.6% rise in selling prices over the next year. This is the lowest figure since September 2021, down slightly from a previous estimate of 3.7%. However, projections for wage growth, a key factor for the BoE in monitoring inflation, were flat at 4.1% for the three months to August, unchanged from the July survey. Monthly data showed wage growth forecasts were steady at 4.0% to 4.1% from May, indicating that the sharp decline in expectations seen over the past 18 months has stopped. That said, lingering wage growth remains a major concern for the MPC’s solicitous members, who are concerned that it could lead to prolonged inflationary pressures in the economy.

Investors estimate a roughly 25% chance that the “Old Lady” will cut interest rates at the September 12 policy announcement, while a rate cut is fully anticipated for November.

What’s next for the pound?

All focus is expected to be on the release of US inflation figures tracked by the Consumer Price Index (CPI). However, the UK calendar looks quite interesting with the release of the ever-relevant labor market report on Tuesday and GDP figures, among other fundamentals, on Wednesday.

GBP/USD: Technical Outlook

If bearish momentum escapes, GBP/USD could retest the September low of 1.3087 (set on September 3), followed by the interim 55-day SMA at 1.2900 and the important 200-day SMA at 1.2720 . Beyond these levels, the pair can target the August low of 1.2664 (from August 8), the June low of 1.2612 (from June 27) and the May low of 1.2445 (from May 9). A break below this area could bring the 2024 low of 1.2299 (recorded on April 22) back into focus, followed by potential moves to the weekly lows of 1.2187 (from November 10, 2023) and 1.2069 ( from October 26) and finally the October 2023 Low of 1.2037 (from October 4).

Conversely, on the upside, immediate resistance for GBP/USD lies at the 2024 high of 1.3266 (reached on 27 August), ahead of the weekly high of 1.3298 (from 23 March 2023) and the February high 2022 of 1.3643 (from 1.3643) February 10). The daily RSI dipped just below 63.