GBP to USD Forecast: How US Jobs Report Might Pressure Pound

Highlights

• The GBP/USD gained 0.48% on Thursday, striking a session high of $1.21958 before ending the day at $1.21910.
• UK house price report could signal a further decline in house prices to test the outlook for consumer confidence.
• The US Jobs Report will be the main event of the day, however.

Overview of the Thursday Session

The GBP/USD rose by 0.48% on Thursday. Following a 0.47% gain on Wednesday, the GBP/USD pair ended the day at $1.21910. The GBP to USD pair fell to a low of $1.21077 before reaching a high of $1.21958.

UK House Prices in Focus

Following the GBP/USD’s sensitivity to the weaker UK Construction PMI, UK house prices will soon be in focus. A further decline in UK house prices would likely test buyer appetite for the Pound.

Economists forecast the Halifax to report a 0.8% decline in house prices in September. House prices declined by 1.9% in August.

While the real estate sector contributes less than 10% to the UK GDP, house price trends impact consumer confidence.

UK private consumption contributes more than 60% to the UK economy. Falling house prices would adversely affect consumer spending on non-essential items, adding pressure on the UK economy and the Pound.

US Jobs Report and the Fed in the Spotlight

Later today, the US Jobs Report will garner investor interest. Economists forecast average hourly earnings to increase by 0.3% and nonfarm payrolls to rise by 170k. Significantly, economists predict the US unemployment rate to fall from 3.8% to 3.7%.

A pickup in wage growth and tighter labor market conditions would raise investor bets on a more hawkish rate path.

Tighter labor market conditions could drive wages higher, fueling consumption and demand-driven inflation. A more hawkish Fed rate path would impact borrowing costs, forcing firms to cut staff costs and consumers to curb spending.

With the US Jobs Report in the spotlight, FOMC member commentary also needs consideration. FOMC voting member Christopher Waller is on the calendar to speak today. Upbeat stats and a hawkish outlook on the Fed interest rate trajectory will likely pressure the GBP/USD.

Short-Term Forecast

Near-term GBP/USD trends hinge on the US Jobs Report. Better-than-expected numbers would support a more hawkish Fed rate path, suggesting a GBP/USD return to sub-$1.20. However, a weaker-than-expected report could bring $1.23 into play.

GBP to USD Price Action

Daily Chart

The GBP/USD pair stayed below the 50-day and 200-day EMAs, affirming bearish price signals. Significantly, the 50-day EMA pulled back from the 200-day EMA after the bearish cross, signaling further losses.

A slide in UK house prices and a better-than-expected US Jobs Report would support a GBP/USD move toward the $1.19055 support level.

However, a weaker-than-expected US Jobs Report and dovish Fed comments would support a break above the $1.22150 resistance level. A break above the resistance level would give the bulls a run at $1.23.

The 14-period daily RSI reading of 36.35 suggests the GBP/USD drop below $1.21 before entering oversold territory.

4-Hourly Chart

The GBP/USD hovers above the 50-day EMA while remaining below the 200-day EMA, sending bullish near-term but bearish longer-term price signals. A GBP/USD break above the $1.22150 resistance level would support a move toward the 200-day EMA.

However, a fall through the 50-day EMA would bring sub-$1.21 and the $1.19055 support level into view.

With a 56.56 reading on the 14-period 4-hourly RSI, the GBP/USD can return to $1.23 before entering overbought territory.