Pound-to-Dollar: NFP Matters More
- Written by: Gary Howes
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GBP/USD rebounded through Friday and Monday and holds the gain, quoting at 1.3685 on Tuesday, this up from the week's open at 1.3508.
The 0.60% rise on Monday contrasts with pound sterling’s weaker performance elsewhere, reinforcing the view that GBP/USD is currently less sensitive to domestic UK political intrigue than other pound crosses.
In that respect, GBP/EUR acts as the cleaner gauge of idiosyncratic UK risk, while GBP/USD continues to trade primarily as a dollar story.
Technically, the GBP/USD pair is holding above its 50-day moving average, which is pointing higher and keeping the broader uptrend intact.
The configuration confirms dollar weakness dollar remains in the driving seat, with sterling reacting to shifts in U.S. expectations rather than setting the pace.
Attention now turns to the midweek release of U.S. labour market data, with non-farm payrolls (NFP) set to dominate market thinking.
"The whisper number for NFP tomorrow has been lowered to 45k, the consensus is 68k," says a daily note from the strategy research desk at Société Générale.
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That downgrade follows a leg lower in U.S. yields and the dollar after Kevin Hassett, Director of the National Economic Council, signalled that January jobs numbers may come in slightly weaker.
Markets are already priced for the Federal Reserve to deliver a first rate cut by June, followed by another before year-end.
A weak payrolls reading would likely prompt investors to price in a faster or deeper easing cycle, weighing further on the dollar and supporting GBP/USD.
However, after the sizeable dollar moves seen on Friday and Monday, there is also a risk of a counter-move.
Any upside surprise in the data could trigger a recovery in the dollar, as positioning and expectations appear skewed toward disappointment.
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