GBP/USD Slips to $1.3520- Stronger US Nonfarm Payroll in Play

• The unemployment rate in the United States increased to 4.0 percent in January 2022, supporting the US dollar.
• Bank of England raised interest rates by 25 basis points to 0.5 percent.
• A surge in demand could push the GBP/USD price towards the next resistance level of 1.3598 or 1.3665.

The GBP/USD pair failed to close above 1.36. According to Scotiabank economists, the cable is now at risk of significant losses toward 1.34 and even 1.32. The British Pound fell further after the Bank of England (BoE) raised interest rates by 25 basis points. But dovish comments by BoE’s Bailey in a press conference sent the GBP/USD down from weekly highs. It is currently trading at 1.3542 at the time of writing.

A better-than-expected US employment report sent US Treasury yields higher, led by 2s and 10s. That rose between twelve and ten basis points, to 1.318 percent and 1.92 percent, respectively. This supports the greenback, which has recovered some of its earlier losses and is now trading at 95.44, up 0.07 percent on the day.

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Stronger US Nonfarm Payroll drags GBP/USD lower

Despite an increase in omicron Covid-19 cases, employers in the United States added over 450,000 jobs last month, owing to solid hiring at restaurants, bars, retailers, and mail and parcel delivery workers. The leisure and hospitality sector, which the Covid-19 pandemic has particularly hard hit, added more than 150,000 jobs in the first month of 2022. 

Over the last 12 months, leisure and hospitality have added an average of 196,000 jobs per month, far outpacing any other industry as it recovers from the worst of the pandemic. However, due to widespread business closures in 2020, the sector is still 1.8 million jobs, or 10.3 percent, short of where it was in February 2020.

Average Hourly Earnings m/m

Hourly earnings increased 0.73 percent month over month, the fastest rate since December 2020. Average hourly earnings were up 5.68 percent from January 2021, the fastest annual rate since spring 2020.

Unemployment Rate

The unemployment rate in the United States increased to 4.0 percent in January 2022, little changed from December’s new pandemic low but slightly higher than market expectations of 3.9 percent. As a result, the unemployment rate has fallen by 2.4 percentage points in a year, and the number of unemployed people has decreased by 3.7 million.

GBP/USD Weakens Despite Hawkish BoE Policy  

As expected, the Bank of England raised interest rates by 25 basis points to 0.5 percent. The surprise came from a split vote on a significant hike, with four members voting in favor of a 50bps hike. As a result of the Bank’s suggestion that additional rate hikes may be required, money markets are now pricing in a 25 basis point increase in each of their next four meetings. While the decision itself was a hawkish surprise, Governor Bailey’s press conference had been somewhat dovish, with the message appearing to be, frontload with hikes now, then stop and reassess.

Governor Bailey adds his thoughts:

• Rates should not be expected to rise steadily for a long time.
• We haven’t raised rates because the economy is booming; this isn’t a typical demand-driven increase in the Bank rate.
• This year, real incomes are expected to be squeezed.
• It would not be surprising to see another rate hike, but don’t get too excited.

What Comes Next?

Looking ahead to next week, the UK’s economic calendar is relatively light, with only the preliminary Q1 GDP reading due. In my opinion, the data is unlikely to be materially market-moving for currency unless it deviates significantly from consensus. 

This is my opinion for two reasons: first, the data is somewhat backward-looking, and second, traders’ primary focus is inflation. In other words, the ebb and flow of risk appetite will be the primary driver of the Pound.

GBP/USD Price Analysis – Technical Outlook

For fundamental reasons, the GBP/USD fell below 1.3600 during the overnight session, dropping more than 100 pips. However, the drop was halted at the 100-day moving average (DMA). However, it forms a bearish-engulfing candle, implying a leg down before consolidating.

The confluence of the 100-day moving average and the 38.2 percent Fibo retracement, located around the 1.3507-20 range, will be the first support level to be tested for the GBP/USD. If the latter is breached, the pair is likely to fall towards the confluence of the 50-DMA and the 50 percent Fibonacci retracement around 1.3433-55, followed by the 61.8 percent Fibonacci retracement at 1.3381.

A surge in demand could push the GBP/USD price towards the next resistance level of 1.3598 or 1.3665. However, the pair has formed a “bearish engulfing candle” that signals strong chances of selling trend continuation. Therefore, the bias for the downtrend dominates under the 1.3520 level with a target of 1.3450 and vice versa.

Good luck, and stay tuned for more updates!