GBP to USD Forecast: Cable Tension Rises Amid Hawkish BoE Comments and US Jobs Report

Highlights

• GBP/USD fell 0.38% on Thursday, reversing a 0.61% gain, ending at $1.26724 after a choppy session of highs and lows.
• BoE Chief Economist Huw Pill’s speech could move markets after discussing the need to tame inflation.
• US Jobs Report remains a wild card for GBP/USD; hawkish wage growth could tilt the scales.

The Thursday Overview

The GBP to USD fell by 0.38% on Thursday. Partially reversing a 0.61% gain from Wednesday, the GBP to USD ended the day at $1.26724. A choppy session saw the GBP/USD rise to an early high of $1.27342 before falling to a low of $1.26523.

BoE Chief Economist to Overshadow the UK Manufacturing PMI

Finalized UK manufacturing PMI numbers for August will draw interest this morning. Hawkish BoE commentary leaves the UK economy in a precarious position. A higher-for-longer interest rate environment to tackle inflation could deliver a prolonged recession.

Prelim UK private sector PMI surprised the markets, leading to less hawkish BoE monetary policy bets. However, wage growth and inflation remain elevated. The uptrend in wage growth would support a pickup in consumption to fuel demand-driven inflationary pressures.

A substantial upward revision to the UK manufacturing PMI would provide comfort. However, the UK manufacturing sector accounts for less than 30% of the UK economy. The limited influence on the UK economy should also limit the impact of the numbers on the GBP/USD.

While we don’t expect too much GBP/USD sensitivity to the PMI, Bank of England Chief Economist Huw Pill speaks again today. On Thursday, Huw Pill discussed the need for higher-for-longer to tame inflation at the expense of the UK economy.

The markets are betting on two further rate hikes before the BoE hits the brakes. An elaboration on Thursday’s monetary policy-related comments would move the dial.

US Jobs Report to Test GBP/USD Buyer Appetite

The US Jobs Report will dictate direction for the GBP to USD pair later today. While the markets are betting on two further BoE rate hikes, the jury is out on Fed policy intentions.

The US Personal Income and Outlays Report revealed a sharp increase in personal spending but a fall in income. Despite a pickup in inflationary pressures, there was no change in sentiment toward the Fed interest rate trajectory.

However, the US Jobs Report could have the final say. An unexpected pickup in wage growth and a fall in the US unemployment rate would be the most hawkish combination. However, we expect wage growth figures to trump the unemployment numbers.

Higher wage growth leads to an increase in disposable income, fueling consumption and delivering demand-driven inflationary pressures.

ISM Manufacturing and finalized Markit survey PMI numbers are also out. However, we expect these to play second fiddle to the US Jobs Report.

GBP to USD Price Action

Daily Chart

On Thursday, the GBP/USD fell through the 50-day EMA after retesting the trend line and being denied. Two failed attempts to break through the 50-day EMA and trend line suggest a downward bias.

Concerns over the UK economic outlook and a hotter-than-expected US Jobs Report would bring sub-$1.26 into view.

However, a weaker-than-expected US Jobs Report would support a breakout from the 1.26815 resistance band to bring the 50-day EMA and trend line into play.

Considering the 14-Daily RSI at 45.28 and the downward bias, the GBP to USD has room to fall before entering oversold territory.

4-Hourly Chart

The 4-Hourly Chart sends bearish price signals. On Thursday, the GBP/USD failed to break out from the 200-day EMA and trend line. The resulting pullback led to a fall through the $.26815 support band (now resistance) to test the 50-day EMA.

A better-than-expected US Jobs Report would see the GBP/USD pullback from the 50-day EMA to bring sub-$1.26 into play. However, softer US wage growth and higher unemployment would support a breakout from the 50-day EMA. A move through the $1.26815 resistance band would give the bulls a run at the 200-day EMA and trend line.

Considering the 50.26 14-4H RSI reading, the market is on the fence ahead of the US Jobs Report.