GBP/USD Approaches Key 1.30 Support Level Amid Strong US Jobs Data
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In recent trading sessions, the GBP/USD exchange rate has declined to its lowest point since mid-September, hitting the critical 1.3070 support level. This drop follows reports from the US Bureau of Labor Statistics indicating that the US economy added 254,000 non-farm jobs in September, significantly surpassing expectations of 147,000 jobs.
The jobs report also highlighted a positive revision for August, where the number of jobs added was adjusted from 142,000 to 159,000. Additionally, the unemployment rate saw a decrease from 4.2% to 4.1%, further bolstering the dollar's strength.
As a result, financial markets are now expressing skepticism regarding the likelihood of a 50-basis point interest rate cut by the Federal Reserve in November, with current expectations sitting at just 5%. This shift in sentiment has led to an increase in US bond yields and a stronger dollar.
The robust US jobs data comes just a day after Bank of England Governor Andrew Bailey suggested that the central bank might accelerate the pace of interest rate cuts, despite a lack of supporting data. It appears that Bailey's comments were influenced by the Federal Reserve's recent 50-basis point cut in September and hints from the European Central Bank regarding potential cuts in October.
Despite Bailey's desire to expedite rate cuts, the Bank of England will likely need to maintain a quarterly pace of rate increases. The strong performance of the US economy, highlighted by the addition of 254,000 non-farm jobs, has diminished expectations for another 50-basis point cut by the Federal Reserve.
This anticipated cut is crucial for the Bank of England and other global central banks seeking justification to lower their own interest rates. Karl Schamotta, chief market analyst at Corpay, remarked, "The 'no landing' scenario for the United States has suddenly become more likely, suggesting that expectations of aggressive monetary easing in most major economies should be scaled back."
The US jobs data follows Bailey's indication that the Bank of England could become more proactive regarding rate cuts. However, the lack of fresh economic data raises questions about the validity of such a shift. Bailey seems to be leveraging the Fed's recent actions as a rationale for changing tactics.
Earlier on Friday, the Bank of England's chief economist expressed the need for caution, citing concerns about potential structural changes that could lead to sustained inflationary pressures in the UK economy. He emphasized the importance of a careful approach, stating, "Further cuts in bank interest rates remain possible if the economic and inflationary outlook evolves broadly as expected, but it will be crucial to guard against the risk of cutting interest rates too much or too quickly."
From a technical perspective, the daily chart indicates a significant bearish trend for GBP/USD, which could strengthen if prices approach the support levels of 1.3090 and 1.2980. A break below the psychological support level of 1.30 is plausible if upcoming US inflation figures exceed expectations, similar to the recent jobs report. Consequently, our analysis supports selling GBP/USD at any upward movement, with the nearest resistance levels identified at 1.3230 and 1.3300.
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