- The GBP/USD outlook suggests growing concerns about the UK’s fiscal health.
- The UK government made a U-turn on welfare reforms.
- Data in the previous session revealed that the US private sector lost 33,000 jobs in June.
The GBP/USD outlook suggests growing concerns about the UK’s fiscal health, which have weighed on the pound. At the same time, market participants are worried that the government might replace the current finance minister. However, dollar weakness allowed the currency to recover on Thursday.
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British bonds collapsed on Wednesday, dragging the pound lower. The move came after the government made a U-turn on welfare reforms, which had previously been part of the current budget. The move put a lot of pressure on the finance minister, Rachel Reeves. Moreover, it stoked worries about a likely replacement that would create uncertainty.
However, the pound regained its footing on Thursday as the dollar weakened ahead of the nonfarm payrolls report. Data in the previous session revealed that the private sector lost 33,000 jobs in June. Meanwhile, estimates had shown an addition of 99,000 jobs. The downbeat report increased worries about a slowdown in the labor market. As a result, the chances of a July Fed rate cut rose from 20% to 25%. If the nonfarm payrolls are also poor, rate cut expectations will increase further, pushing the dollar lower.
GBP/USD key events today
- Average Hourly Earnings m/m
- Non-Farm Employment Change
- Unemployment Rate
- ISM Services PMI
GBP/USD technical outlook: Bears pause for breath at the 1.3601 level
On the technical side, the GBP/USD price has broken below the 30-SMA, indicating a shift in sentiment. The move followed a bearish divergence in the RSI, indicating weakness in the previous rally. Although bulls broke above the 1.3750 resistance, they failed to sustain a move higher. As a result, bears took charge by sending it below the SMA.
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However, the sharp decline paused at the 1.3601 key support and resistance level. As a result, the price has pulled back and is aiming for the 30-SMA. If the SMA holds firm, GBP/USD might drop below the 1.3601 support level. Such a move would form a lower low, confirming a new downtrend. Moreover, it would pave the way for bears to reach the 1.3400 support level. On the other hand, if the SMA gives way, the price will likely retest the 1.3750 resistance level.
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