GBP to USD Forecast: US Labor Market Stats and the Fed in the Spotlight

Highlights

• The GBP/USD declined by 0.14% on Tuesday, ending the session at 1.21524.
• Better-than-expected US economic indicators left the GBP/USD in negative territory on Tuesday.
• On Wednesday, US labor market figures and the Fed will be in focus.

The Tuesday GBP/USD Overview

On Tuesday, the GBP/USD declined by 0.14%. Following a 0.43% gain on Monday, the GBP/USD pair ended the session at $1.21524. The GBP to USD rose to a high of $1.22007 before falling to a low of $1.21196.

UK Housing Sector: A Litmus Test of the UK Economy

On Wednesday, UK housing sector and manufacturing sector PMI numbers are in focus. UK house prices have been on a downward trend in recent months. Bank of England monetary policy moves to curb inflation have driven mortgage rates higher, driving housing supply. Notably, the upward trend in mortgage rates has driven rents higher, contributing to sticky inflation.

Softer wage growth, an elevated interest rate environment, and a downward trend in house prices impact consumer sentiment. Significantly, consumers also have less disposable income, adversely affecting consumption.

UK private consumption accounts for over 50% of the UK economy. Downward trends in consumption could adversely affect the UK economy. A negative consumption outlook eases pressure on the BoE to maintain a hawkish rate path.

Economists forecast UK house prices to decline by 0.4% in October after stalling in September.

Finalized manufacturing PMI numbers for October also warrant consideration. A downward revision to preliminary numbers could test the appetite for the Pound. According to preliminary numbers, the S&P Global/CIPS Manufacturing PMI increased from 44.3 to 45.2 in October.

The UK manufacturing sector contributes less than 20% to the UK economy. While the numbers are unlikely to sway the Bank of England from policy goals, Pound sensitivity to weak indicators is likely.

US Labor Market and the Fed in the Spotlight

On Wednesday, US labor market figures will garner investor interest. ADP employment change and JOLTs Job openings are in focus. Better-than-expected numbers could force the Fed to leave a rate hike on the table.

Tighter labor market conditions support wage growth, fueling consumption and demand-driven inflation. A higher interest rate environment could reduce disposable income and suppress consumer spending.

Economists forecast the ADP to report a 150k increase in employment. However, economists expect JOLTs Job Openings to fall from 9.61 million to 9.25 million.

However, the US Federal Reserve will have more influence on the buyer appetite for the US dollar. A hold on interest rates would place the focus on the Fed press conference. Upbeat references to the economic outlook and concerns over inflation could drive demand for the US dollar. Economists expect the Fed to leave interest rates unchanged at 5.5%.

Short-Term Forecast

The GBP/USD sits in the hands of the US Federal Reserve on Wednesday. A hawkish Fed and a hotter-than-expected US Jobs Report on Friday could send the GBP/USD to sub-$1.20.

GBP to USD Price Action

Daily Chart

The GBP/USD pair remained below the 50-day and 200-day EMAs, sending bearish price signals.

A GBP/USD fall through the $1.21216 support level would bring the $1.18388 support level into play. A hawkish Fed would pressure the GBP/USD.

However, a return to $1.22 would support a break above the 50-day EMA to target the 200-day EMA and $1.24410 resistance level.

The 14-period daily RSI reading of 43.30 indicates a GBP/USD fall below $1.21 before entering oversold territory.

4-Hourly Chart

The GBP/USD remains below the 50-day and 200-day EMAs, affirming price signals.

A GBP/USD break above the 50-day EMA would support a move to the 200-day EMA.

However, a drop below the $1.21216 support level would give the bears a run at $1.20.

With an RSI reading of 49.06 for the 14-period 4-hourly Chart, the GBP/USD could fall below $1.21 before entering oversold territory.