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GBP/USD fell last week as a string of better-than-expected US economic data indicated the dollar was strong and pushed back expectations for Federal Reserve rate cuts in the near future. The pair fell after failing to maintain its early-week gains. US services and labor data, not any UK developments, drove the move.

The first pressure arose when the US ISM Services PMI came in higher than expected, indicating that the services sector is still growing despite high interest rates. The new orders and prices paid for parts stayed the same, which supports the idea that inflation risks in the service economy are still high. This helped the dollar and pushed US Treasury yields higher, which in turn pushed the GBP/USD down.

The ADP Employment Report, released mid-week, showed that hiring in the private sector remained stronger than expected. The data made markets less likely to expect aggressive easing and more likely to want the dollar ahead of Friday’s jobs report, even though it isn’t always a good predictor of official payrolls.

Following Friday’s Nonfarm Payrolls report, which showed that job growth remained strong and unemployment was lower than expected, the GBP/USD pair fell even faster. Wage growth also remained strong, which alleviated concerns about a rapid decline in the job market. The data made it less likely that the Fed would cut rates early, which helped the dollar end the week strong and put sterling on the defensive.

The market’s direction next week will hinge on whether the new data on inflation and activity reinforce the notion of a robust US economy or pave the way for earlier policy easing.

GBP/USD Major Events Next Week:

• The US CPI inflation report will show whether price pressures are easing or staying the same
• US PPI data, which shows how inflation is changing upstream
• US retail sales, to gauge consumer demand
• Weekly unemployment claims for unemployment benefits in the US provide insight into the job market in the near future.
• UK GDP numbers, which could change expectations about the Bank of England’s policy outlook

If US inflation or consumer data worsens, the dollar will likely remain strong, and the GBP/USD will remain under pressure. On the other hand, lower prices or spending, along with weak UK GDP risks, could alter the market’s direction and allow sterling to stabilize or bounce back.

GBP/USD Weekly Technical Forecast: Critical Demand Zone at 1.3400

(Click on image to enlarge)

GBP/USD daily chart

The daily chart for GBP/USD suggests a strong bearish momentum after falling below the 100-day MA with a bearish crossover of 20- and 50-day MAs. However, the price holds near the demand zone at 1.3400, while a breakout could push the price further lower towards the 200-day MA at 1.3350.

Alternatively, finding adequate buying around 1.3400 could push the price higher to test the confluence of 20- and 100-day MAs around 1.3450 ahead of 1.3500.

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