On Friday during European trading hours, GBP/USD slid to around 1.3550, retreating from a recent three-year peak of 1.3620 set the previous day. The pair came under selling pressure as the US dollar strengthened in anticipation of the May Non-Farm Payrolls (NFP) data, scheduled for release at 12:30 GMT.
The US Dollar Index (DXY), which measures the dollar against six major currencies, climbed to approximately 98.85. Traders are closely watching the upcoming employment figures, as they may reshape expectations about the Federal Reserve’s monetary policy trajectory.
Expectations for US Employment Data
Analysts forecast that US employers added 130,000 new jobs in May, down from 171,000 in April. The unemployment rate is expected to hold steady at 4.2%.
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Average hourly earnings (a key measure of wage growth) are projected to rise 3.7% year-on-year, slightly lower than April’s 3.8%.
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On a month-on-month basis, average hourly earnings are expected to increase 0.3%, up from 0.2% in April.
Fed Rate-Cut Odds Rise on Weaker Data
This week, traders increased bets on a July rate cut by the Fed. Weaker labor demand in the May ADP employment change report and a slowdown in the ISM Purchasing Managers Index (PMI) fueled these expectations. According to the CME FedWatch Tool, the probability of a July rate cut has jumped to 32.8%, up from 22.5% one week ago.
Despite rising rate-cut odds, Fed officials continue to adopt a cautious stance on interest rates. They cite upside inflation risks from trade policies and a resilient labor market.
“I see greater upside risks to inflation and potential downside risks to employment and output growth,” said Fed Governor Adrienne D. Kugler at the Economic Club of New York on Thursday. She noted that the labor market remains “resilient and stable” and that economic activity should grow, albeit at a more moderate pace than in late 2024.
FXStreet’s speech tracker assigned Kugler’s comments a hawkish score of 6.4 on a scale of 0 (most dovish) to 10 (most hawkish).
Technical Outlook: Bullish Momentum Holds
From a technical perspective, GBP/USD remains above the 20-day exponential moving average (EMA), which has turned upward near 1.3443. The pair also finds support around the September 26 high of 1.3434.
The 14-day Relative Strength Index (RSI) sits near 60.00, indicating that bullish momentum is still intact.
In summary, while GBP/USD has pulled back from recent highs, its technical indicators suggest a firm outlook. Traders will likely wait for the US NFP report to confirm the next directional move.
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