GBP/USD outlook: Pivotal week awaits cable

The GBP/USD climbed back above the 1.35 handle on Friday, thanks to a weaker US jobs report which all but cemented expectations that the Federal Reserve will cut interest rates in a couple of weeks’ time. The GBP/USD outlook will be put to the test again next week with the release of more US data, including inflation numbers, while from the UK we will get a monthly update on GDP.

 

US dollar sold off on weak jobs data

 

The US dollar sold off on Friday after new evidence emerged of a cooling US labour market with the release of weaker than expected monthly nonfarm payrolls report. That caused bond yields to decline across the board and in doing so lifted gold to new records. Traders now see the Fed cutting rates in September with near 100% certainty as implied by rates market.

 

Attention is now quickly shifting to next week’s CPI release. A softer inflation print could see markets price in three cuts before the year is out. The August nonfarm payrolls rose by just 22,000 which was weaker than 75,00 expected. Meanwhile the unemployment rate ticked up to 4.3% from 4.2% as expected, while wages grew 0.3% month-on-month – also in line with forecasts.  

 

The CPI data will be released on Thursday, September 11. During the Jackson Hole symposium, Powell all but admitted that labour market risks are now more pressing than inflation and that policy adjustment is likely. Nevertheless, this CPI report will be the last major data release ahead of the FOMC’s September 17 meeting. It will take a massive beat in CPI and probably PPI (which will be released a day before), to rise any serious question marks over the upcoming rate decision – especially with the jobs data weakening.

 

The week’s other important US data is the UoM Consumer Sentiment and Inflation Expectations – released on Friday, September 12.

 

GBP/USD outlook: Stronger hints of UK economy

 

Last week’s data flow was overall positive from the UK, suggesting that a consumer-driven recovery was on the way. Retail sales came in at 0.6% month-over-month in July compared to 0.3% expected and last, while lending data from the Bank of England showed that net lending to individuals climbed by £6.1 billion on the same month, significantly more than £4.9bn expected. We also saw a positive PMI final reading of 54.2 for the services sector compared to 53.6 reported initially, adding to the positive data releases.

 

Looking ahead, UK data in the week ahead is light until we get to the end of the week. On Friday, we will have the monthly releases of GDP, manufacturing production and construction output.

 

Technical GBP/USD outlook: Key levels to watch

 

 

The overall price structure on the GBP/USD outlook is bullish. But price action during the summer months has been typically range bound. But renewed technical buying could be the outcome should the cable break above a key resistance range between 1.3540 to 1.3588. Meanwhile, support is seen around 1.3435-60 area. Lose that and a retest of the 1.33 handle could be on the cards.