GBP/USD outlook: US payrolls take centre stage
The US dollar remained on the front-foot Friday morning. Today’s US nonfarm payrolls report looks set to be the main event for FX markets, with expectations firming that the data will be solid enough to keep the Federal Reserve on hold for longer. Alongside this, markets are increasingly pricing in the possibility that the Supreme Court will rule against Trump’s tariff proposals, a combination which, taken together, would likely prove mildly supportive for the dollar. Against that backdrop, the near-term GBP/USD outlook is increasingly looking mildly bearish.
US data sends mixed signals ahead of jobs report
This week’s US macro picture has been anything but straightforward. The ISM services survey surprised on the upside, ADP payrolls were respectable rather than spectacular, while JOLTS data disappointed, highlighting a continued cooling in labour demand. Jobless claims, meanwhile, have held up well enough to reinforce the view that the US economy is slowing, but not rolling over. Challenger job cuts, released earlier this week, showed a sharp drop in December.
The overall mixed employment indicators have helped underpin cautious optimism ahead of today’s payrolls report. Expectations have risen over the past couple of days, rising from around 50k to 65k, with consensus now sitting close to 70k. The unemployment rate may attract even more attention than the headline jobs number, echoing the Fed’s own focus on labour market slack. A modest improvement here, combined with payrolls around consensus expectations or slightly higher would be enough to keep the odds of a March move below 50%.
Adding another layer of uncertainty, many are watching for a potential Supreme Court ruling on Trump’s tariffs today — though timing remains far from guaranteed. A rejection of those measures would remove a tail risk for the global economy, but paradoxically could still offer near-term support to the dollar.
Pound weighed down by BoE rate cut expectations
For sterling, the focus remains firmly on the Bank of England. UK data continues to point towards a cooling economy and easing inflation pressures, keeping the door open to further rate cuts. While February still looks a step too far, the balance of evidence suggests March is increasingly plausible, potentially followed by another move in early summer.
The labour market remains a key concern for the more cautious members of the MPC. Vacancies have fallen sharply and now sit below pre-pandemic levels, while redundancies appear to be picking up. Wage growth has slowed noticeably, with private sector pay increases dropping from around 6% earlier last year to just under 4% by the autumn. If this trend continues, services inflation should ease further as food prices, rents and energy costs all cool. Base effects from last year’s tax changes are also likely to push headline inflation lower from April onwards, potentially keeping CPI close to 2% for much of the year.
Markets currently favour April for the next cut, but March still looks the more likely option in our view, assuming incoming labour and wage data continues to soften.
GBP/USD outlook: technical picture remains fragile
Technically, the GBP/USD outlook is starting to look a bit shaky. The prior bullish momentum has clearly faded following the rejection from the 1.35 area, which coincides with a broader long-term resistance zone. The lack of upside follow-through suggests bullish conviction is waning. Traders who chased the recent upside are already under pressure, as we have now seen the cable break below Monday’s low at 1.3415. A sustained break below this level past the NFP data could accelerate position unwinding, especially if we also see rates hold below the 1.34 handle where the 200-day moving average comes into play. A clean break below this level would shift the balance towards a deeper corrective phase with the location of the next support not very obvious. The 1.3220 level could be where dip-buyers might step in next. On the topside, initial resistance is seen around 1.3515 area now, with stronger resistance being that 1.3500 level.
Overall, the GBP/USD outlook looks increasingly tilted to the downside, barring a major downside surprise in NFP. Near-term direction will hinge on today’s US labour market data and any legal developments in Washington, while the medium-term outlook remains closely tied to the Bank of England’s next move.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
