Sterling Bounces After Drop on Wednesday
The British pound has rallied after initially falling on Wednesday, as risk appetite may be trying to find its way into the market via a shrinking US dollar. It's worth noting that the Thursday session features the non-farm payroll announcement because of the 3-day weekend in America, so this could be a bit of short covering ahead of that economic announcement. The US dollar has weakened somewhat across the forex world, but again, I don't think it has been anything of note, and quite frankly, the distance travelled by the pairs has been somewhat low lately, with the exception of the GBP/USD and USD/JPY pairs.
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The US dollar continues to be highly tied to a couple of factors. The first one would be geopolitics, as the situation in the Middle East continues to grab the headlines. Furthermore, we also have to pay attention to the idea of the Federal Reserve raising interest rates twice by the end of the year. This is the running consensus, but with the jobs report coming out on Thursday, we'll have to watch to see if that shifts.
Non-Farm Payrolls and the 1.32 Range Support
The price action right now is more or less looking like a market that is trying to stay in a range. The 1.32 level has been significant support for well over 1.5 years, with the exception of 1 throwover in late 2025, and the reaction there is one that suggests we are still trying to find a bit of stasis. The 1.33 level could be resistance, and the 50-day EMA near the 1.3363 level could be a target for those who are bullish. That being said, the reaction to the job numbers could get us to either one of those big figures pretty quickly. Anything beyond that more likely than not would ask further questions of the markets, and we will have to determine what the market is going to focus on next.
Don’t Forget the FedTool
I would be concerned at this point about the idea of geopolitics, and I would also watch the CME FedTool because right now, traders are betting on more interest rate hikes in America, which is part of what keeps the US dollar firm. In fact, many think the market can expect two more rate hikes. It's worth noting, though, that the British pound has a slight advantage interest rate-wise, and therefore it is more resilient than many other currencies. Quite frankly, if you see this pair fall, you may get better traction in other pairs involving the US dollar, such as the New Zealand dollar against the US dollar or maybe even the Australian dollar.
Is the NFP Priced In?
The question at this point is, will markets already have the jobs number priced in? It's hard to tell; we won't know until the reaction, but as things stand now, it looks like the Americans are expected to add 114,000 jobs last month and have an unemployment rate of 4.3%. All things being equal, we typically see a lot of volatility and very little follow-through on these days. This is a situation where we are continuing to see questions asked about whether or not there is any clarity.
If we get a shock result, then we could have to reprice things, and if it's in favor of the US dollar, we could go looking for a new range at this point. Remember, the GBP has done better than most others against the Dollar, so it could also be thought of as a signal as to what to do in other pairs as well, as the USD will move in the same direction across multiple pairs quite often.
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