- Sterling wallowed near recent lows amid turmoil in the UK debt market.
- Markets are only pricing 40-bps of Fed rate cuts this year.
- Economists expect US jobs to increase by 160,000 in December.
The GBP/USD outlook is extremely bearish, pushing the pound to a 14-month low as the UK bonds market slumps. On the other hand, the dollar was heading for a sixth week of gains due to a rally in US Treasury yields and anticipation of another upbeat US employment report.
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Sterling wallowed near recent lows amid turmoil in the UK debt market. The panic comes at a time when investors are worried about the UK economy due to the prospects of increased government spending and higher taxes. Data in the latter part of 2024 revealed a slowdown in the UK economy that increased bets for BoE rate cuts.
Initially, economists had expected better performance under the new government. However, it has yet to materialize. As a result, traders are worried about the future, especially with Trump as the new US president.
Meanwhile, the greenback continued its recent rally as Treasury yields soared. Recent economic data has shown resilience in the US economy, which has led to a drop in Fed rate cut expectations. Markets are now only pricing 40-bps of cuts this year, giving the dollar an edge over its peers.
The next major report is the nonfarm payrolls. Economists expect jobs to increase by 160,000 in December, a slowdown from the previous month. On the other hand, the unemployment rate might hold steady at 4.2%.
GBP/USD key events today
- US average hourly earnings m/m
- US nonfarm employment change
- US unemployment rate
GBP/USD technical outlook: Bears stall at 1.2250 support
On the technical side, the GBP/USD price has paused near the 1.2250 support level. Bears have made a new low, confirming a continuation of the downtrend. However, there are signs that this downtrend might not continue for too long.
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First, bulls have shown attempts to reverse the trend by breaching the 30-SMA resistance. Although bears eventually resumed the downtrend, it is a sign that bulls are getting stronger. Second, the RSI has made a slight bullish divergence. The price has made a lower low, but the indicator has made a higher, signaling fading bearish momentum.
The Bulls may retest the 30-SMA and the 1.2400 key level if the divergence plays out. A break above would confirm a shift in sentiment. Otherwise, the downtrend will continue.
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