GBP/USD Catches its Breath as the Dollar and Risk Sentiment Remain the Driving Force

GBP/USD FUNDAMENTAL BACKDROP

Cable reached a high of 1.23420 against the greenback in Asian trade before the European open brought a modest dollar recovery pushing the pair back below the 1.2300 handle. The initial bounce in the Asian session could be attributed to news over the weekend regarding the relaxation of ‘Covid Zero’ protocols in China boosting overall sentiment.

Friday’s US NFP report failed to keep dollar bulls interested as gains made following the release were surrendered by the end of the US session. The jobs data on Friday may still be on the mind of investors as wages (average hourly earnings) continued to show growth in the US hinting that inflationary pressures remain a concern. Despite the increase in wages the probability of a 50bps hike by the Fed at its upcoming meeting continued to increase (80% today vs 76% pre-NFP). The only significant data out today is the ISM non-manufacturing PMI for November which could provide some support to the dollar should it beat estimates.

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Cable on the other hand has limited high impact data releases this week while the economic outlook remains cloudy. The recent bounce has had more to do with dollar weakness and improving market sentiment than any significant changes to the UKs outlook moving forward. The recent inflation print out of the UK showed food prices continue to rise which could in theory dent sales around the festive season as households prioritize essentials purchases.

GBP/USD Daily Chart – December 5, 2022