GBP/USD takes a step higher as Greenback cools

• GBP/USD found a second day of gains as bidders return to Cable.
• Despite a lack of year-to-date US jobs data, sentiment remains high on rate cut hopes.
• Friday’s US NFP data to serve as a gauge for the depth of the Fed’s upcoming rate cut.

GBP/USD rose for a second straight day on Thursday, setting itself up for a bullish recovery despite failing to recapture the 1.3200 level. Market sentiment remained high as a slowdown in new job growth kept hopes for an extended rate cut from the Federal Reserve (Fed) pegged to the ceiling.

UK data remains thin on the economic front as markets head into Friday. The US Nonfarm Payrolls (NFP) job additions due in the final US market session of the week promise to be a big event that will draw plenty of investor eyes.

According to payroll processor ADP, the U.S. added 99,000 new jobs in August, down from 111,000 in July and well below the 145,000 expected. August ADP additions are the lowest pattern since the start of 2021, sparking a new round of risk aversion and reigniting investor concerns that the US could be headed for a recession.

The ADP jobs report serves as a benchmark for what markets can expect from Friday’s upcoming US NFP report, albeit one with a shocking record of accuracy. The August NFP print is the last significant labor update before the Federal Reserve’s (Fed) next interest rate request on September 18, when Fed policymakers are widely expected to kick off a rate-cutting cycle. Friday’s NFP print is set to reach 160K compared to 114K last month.

According to CME, rate markets are currently betting on 40% odds that the Fed will open the doors to a 50bps rate cut later in the month. The remaining 60% are betting on a more modest opening rate cut of 25 bps. Investors anticipate using Friday’s NFP print as a way to gauge the depth of the Fed’s first rate cut since the Fed cut 100 bps in March 2020.

GBP/USD price

Despite a second straight intraday rally on Wednesday, Cable remains down from multi-month highs above 1.3250. The pair is stubbornly holding on to recent highs after hitting a 29-month supply high in August. Price action is still firmly tilted to the upside above the 200-day EMA at 1.2725, while the immediate downside technical target for shorts will be the 50-day EMA just above the 1.2900 handle.

GBP/USD Daily Chart