GBP/USD is gaining some positive traction above 1.2400 in the early European morning. Markets stay cheerful and dull the US Dollar’s attractiveness as a safe haven. Traders could resort to repositioning ahead of Wednesday’s key US inflation data.
The Sterling Pound gets an additional lift after British Retail Consortium (BRC) reported that like-for-like retail sales rose by 4.9% in March and the total retail spending increased by 5.1% YoY during the reported month. The upside for the GBP/USD pair, however, seems limited in the wake of the recent mixed signals from the Bank of England (BoE) members over the next policy move. It is worth recalling that the BoE MPC member Silvana Tenreyro advocated for consideration of cutting rates sooner than thought as the absence of cost-push shocks would bring down inflation well below targets. In contrast, the BoE Chief Economist Huw Pill said that action is still needed in assessing inflation prospects and that the onus remains on ensuring enough policy tightening is delivered to see the job through. This warrants some caution for bullish traders.
Moving ahead, there isn’t any major market-moving economic data due for release on Tuesday, either from the UK or the US. Hence, the broader risk sentiment and the US bond yields will drive the USD demand, which, in turn, should provide some impetus to the GBP/USD pair. Meanwhile, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the recent pullback from the highest level since June 2022 has run its course and positioning for additional gains.
After having closed in negative territory on Friday, GBP/USD has managed to stage a rebound early Monday. The pair seems to have stabilized above 1.2400 on Easter Monday but it is likely to fluctuate in a tight range amid subdued market action.
The US Bureau of Labor Statistics reported on Friday that Nonfarm Payrolls (NFP) in the US increased by 236,000 in March, compared to the market estimate of 240,000. The Unemployment Rate declined to 3.5% from 3.6% and the Labor Force Participation Rate edged higher to 62.6% from 62.5%. Furthermore, annual wage inflation, as measured by the Average Hourly Earnings, fell to 4.2% from 4.6%.
The immediate market reaction to the US jobs report triggered a rebound in the US Treasury bond yields and provided a boost to the US Dollar, forcing GBP/USD to stretch lower ahead of the weekend.
According to the CME Group FedWatch Tool, markets are currently pricing in a 60% probability of the US Federal Reserve hiking its policy rate by 25 basis points at the next policy meeting, down from 71% on Friday.
In case US yields turn south in the American session, GBP/USD could extend its recovery. On the other hand, a negative opening in Wall Street’s main indexes should help the US Dollar find demand and cap the pair’s upside.
It’s worth noting that ahead of Wednesday’s March Consumer Price Index (CPI) data from the US on Wednesday, investors could opt to remain on the sidelines and make it difficult for GBP/USD to find direction.
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