Sterling loses luster ahead of US Non-Farm Payrolls

• Sterling hit a two-year high against the US dollar, then retreated.
• GBP/USD could extend profit-taking ahead of key US employment data.
• Sterling eased into overbought territory on daily RSI, but buyers appear cautious.

British pound (GBP) buying interest against the US dollar (USD) remained unchanged, sending GBP/USD to a 29-month high above 1.3250 before sellers fought back in the second half of the week.

Sterling witnessed good business both ways

GBP/USD extended the winning momentum from the previous week and hit a 29-month high at 1.3266, while the US dollar’s decline gained momentum in the first part of the week. Accommodative statements by US Federal Reserve (Fed) Chairman Jerome Powell at the Jackson Hole Symposium on August 23 continued to raise dovish expectations of potential interest rate cuts later this year, exacerbating the pain in the USD.

Powell clearly confirmed that the Fed’s easing cycle will begin in September, noting that “the time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on the data received, the evolution of the perspectives, and the balance of risks”. The US dollar index (DXY) hit a thirteen-month low on Tuesday despite resistance from US Treasury yields amid strong government bond auctions.

Rising geopolitical tensions between Israel and Iran have also failed to lift demand for Green Card asylum. Israel launched a preemptive airstrike on Hezbollah in southern Lebanon on Sunday, using 100 fighter jets to hit 40 locations, as it said Hezbollah would launch a large-scale rocket and missile attack in northern and central Israel , the target being the Mossad. Israeli spy agency.

The tide, however, turned in favor of USD buyers after Atlanta Fed President Raphael Bostic ruled out the first interest rate cut likely in September, noting that “inflation fell faster than expected, unemployment rose more than it was believed. This means we should bring forward the rate cut to the third quarter.”

Additionally, a sell-off in tech stocks due to disappointing sales forecasts from US AI giant Nvidia infused safe-haven flows into the US dollar, triggering a fresh correction in GBP/USD from near multi-year highs. In addition, increased bets for a September interest rate cut by the European Central Bank (ECB) fueled a EUR/USD sell-off, providing further upside for the US dollar against the British pound.

The upward revision of US second quarter gross domestic product (GDP) data also helped to renew optimism around the US dollar as the GBP/USD pair gave up the 1.3200 mark.

The U.S. economy grew last quarter at an annual pace of 3 percent, fueled by strong consumer spending and business investment, an upgrade from the government’s initial reading of 2.8 percent. Markets are now pricing in just 33% odds of a 50 basis point (bp) cut next month, down from the 38% seen earlier in the week, according to CME Group’s FedWatch tool.

The pair hit weekly lows on the final trading day of the week as traders jittery ahead of the core US personal consumption expenditure (PCE) price index, the Fed’s preferred inflation gauge.

On an annual basis, the PCE price index rose 2.5%, the US Bureau of Economic Analysis (BEA) reported on Friday. This reading was below market expectations of 2.6%. The core PCE price index, which excludes volatile food and energy prices, rose 2.6 percent over the same period, matching June’s increase and coming in below the market forecast of 2.7 percent. The core PCE price index rose 0.2% on a monthly basis, as expected. July’s PCE inflation numbers failed to trigger a market reaction and made it difficult for GBP/USD to rally.

US Nonfarm Payrolls will stand out during the shortened holiday week

Another shortened week of holidays is in store as the United States (US) celebrates Labor Day on Monday. There is nothing of note from the United Kingdom (UK) file that day, except for the final S&P Global Manufacturing PMI.

It’s an economic calendar with sparse UK data in the coming week. Instead, the high-impact US employment data will come out from Wednesday, and the all-important US non-farm payrolls data is due on Friday.

Earlier in the week, the US ISM manufacturing PMI will be reported on Tuesday. Meanwhile, the US JOLTS Job Openings survey will decline on Wednesday.

The usual weekly US jobless claims will be released after the ADP Employment Change data, followed by the ISM Services PMI.

In addition to data releases, GBP/USD traders will be closely watching sentiment around central bank policy expectations, Fed official speeches and geopolitical risks in the Middle East.

GBP/USD: Technical Outlook

The GBP/USD pair remains poised for further growth, but a brief correction could be in the offing following the relentless rally seen this month.

If the pullback extends into the week ahead, the July 17 high of 1.3045 will be challenged initially. A failure to hold above this level could trigger another decline towards the 21-day simple moving average (SMA) at 1.2959.

The next relevant cushion is seen at the 1.2894 peak on March 8, which coincides with the 50-day SMA, making it a healthy support level.

Only a firm break below the latter will accelerate the decline towards the critical confluence demand area near 1.2730, where the 100-day and 200-day SMAs remain around.

However, with the 14-day Relative Strength Index (RSI) still well above the 50 level, any corrective pullback in GBP/USD could be seen as a good ‘buy low’ opportunity.

On the upside, GBP/USD could encounter intermediate resistance at 1.3250 before the 29-month high of 1.3266 is retested.

Above, GBP buyers will target the round level of 1.3300 and the psychological barrier of 1.3350.