Sterling extends winning streak during NFP week

• Sterling briefly recovered to 1.3400 against the US dollar.
• GBP/USD eyes US jobs data for fresh directional boost.
• The daily technical setup continues to favor sterling buyers.

The British pound (GBP) secured three consecutive months of gains against the US dollar (USD) in the past week as the GBP/USD pair recovered the 1.3400 mark to remain at its highest level since March 2022.

Sterling extended its winning streak against the US dollar

GBP/USD entered a bullish consolidation phase between 1.3435 and 1.3250, hitting fresh 30-month highs as the monetary policy divergence between the Bank of England (BoE) and the US Federal Reserve (Fed) continued to support sterling at the expense. of Greenback.

The cautious comments from BoE policymakers contrasted with a series of explicitly dovish comments from Fed officials, keeping alive hopes for 50 basis points (bps) of interest rate cuts by the Fed for November. Meanwhile, markets expect the BoE to cut rates by 25 bps in November.

Several Fed policymakers took to the podium and backed their decisions for a 50 bps rate cut move in September, with the exception of Fed Governor Michelle Bowman, who stuck to her rhetoric.

Meanwhile, BoE Governor Andrew Bailey said on Tuesday: “I am very encouraged that the inflation path is down. Therefore, “I think the path of interest rates will also be downward, but gradually.” On the other hand, BoE policy makers Megan Greene said on Wednesday that “a cautious, steady approach to easing monetary policy is appropriate”.

In addition to the central bank divergence, GBP/USD drew support from persistent risk flows as risk appetite was boosted by a slew of stimulus measures from China, such as a 50bps cut in the key reserve requirement ratio (RRR).

China’s Politburo, the country’s top leadership, pledged on Thursday to support the struggling economy with “forced” interest rate cuts and fiscal and monetary policy adjustments, raising expectations for more stimulus.

In terms of economic data, there were no top releases from the UK. Traders therefore remained glued to Friday’s personal consumption expenditures (PCE) price index, the Fed’s most preferred gauge of inflation, for further clues about the size of the next interest rate cut. Markets dismissed mixed data on US jobless claims and durable goods orders released on Thursday.

Meanwhile, the Fed’s key inflation measure edged closer to the central bank’s August target of 2% on Friday, exacerbating the USD’s pain, sending the pair back towards 30-month highs. The headline PCE price index rose 0.1% on the month, putting the annual inflation rate at 2.2%. The core PCE price index rose 2.7% year-on-year, as expected, while monthly core inflation edged down to 0.1%, from a previous reading of 0.2%.

US employment data will dominate next week

After a lackluster week in terms of economic data releases, next week is a busy one with plenty of top statistics from the United States. On the other hand, the UK record remains devoid of any relevant macro news.

Monday is off to a flying start as Fed Chairman Jerome Powell is scheduled to participate in a moderated discussion titled “A View from the Federal Reserve Board” at the annual meeting of the National Business Economics Association in Nashville. This will be followed by a speech by BoE policymaker Megan Greene.

The US ISM Manufacturing PMI and JOLTS Job Openings Survey will draw attention on Tuesday, followed by speeches from Fed officials Raphael Bostic and Lisa Cook.

Early Wednesday will feature a slew of other Fed policymakers speaking at the Tech Disruption Conference hosted by the Federal Reserve Bank of Atlanta. Later in the day, ADP Employment Change data will take the spotlight in US trade, along with more Fedspeak.

The US ISM Services PMI will be reported on Thursday as traders turn to the all-important Non-Farm Payroll (NFP) due out on Friday.

Speeches from Fed officials and geopolitical developments in the Middle East will continue to boost sentiment around the US dollar, in turn weighing on the GBP/USD pair.

GBP/USD: Technical Outlook

As seen on the daily chart, GBP/USD extended the upside break of the downtrend line resistance, then at 1.3199, to briefly regain the 1.3400 level.

The path of least resistance appears up for the pair in the absence of any firm resistance levels. Sterling buyers could challenge the initial hurdle at the 1.3500 round level on the way to the February 24, 2022 high of 1.3550.

Acceptance above this level will open the door for a test of the February 2022 high of 1.3644. The next bullish bet lines up at 1.3700.

The 14-day Relative Strength Index (RSI) remains in bullish territory, well above the 50 level, suggesting more gains remain in store.

Alternatively, any pullback could meet initial demand at the September 23 low of 1.3249, below which the bearish trendline resistance that has now turned support around 1.3200 will be challenged. At this level, the 21-day simple moving average (SMA) coincides.

Further declines could target the July 17 high of 1.3045, where the 50-day SMA remains around. The 100-day SMA at 1.2897 will be the last line of defense for buyers.