GBP/USD forecast ahead of US NFP data as UK bond yields jump

The GBP/USD exchange rate remained under pressure this week as UK bond yields jumped and as market participants waited for the closely-watched non-farm payrolls (NFP) data. It was trading at 1.3430, down from the year-to-date high of 1.3790.

US non-farm payrolls data 

The GBP/USD exchange rate remained under pressure after the Bureau of Labor Statistics  (BLS) published the latest vacancies number on Wednesday.  This report showed that the number of vacancies in the economy stood at 7.18 million in July, lower than the median estimate of 7.4 million. It was also lower than June’s 7.35 million.

The next important catalyst for the GBP/USD exchange rate will be the ADP private payrolls data, which will come out in the American session. Economists expect the report to show that the private sector added 65,000 in August, lower than the previous 105,000.

This report will come out a day before the BLS publishes the official nonfarm payrolls data (NFP), which is the most closely-watched number this month because of its impact on the next Federal Reserve meeting. 

The median estimate among analysts is that the economy created 75,000 jobs, slightly higher than the 73,000 it created in the previous month. Analysts see the data showing that the unemployment rate rose to 4.3%.

In recent statements, Fed officials have said that they are now more concerned about the labor market instead of inflation, which also remains high because of Donald Trump’s tariffs on imports.

Therefore, a weak jobs report will send a sign that the economy is weakening and that the Federal Reserve will cut interest rates later this month. Christopher Waller and Michele Bowman, two Fed governors, have all advocated for this policy, noting that the impact of tariffs on inflation will be short-lived.

Odds of a Fed cut have been rising and are now being reflected on the bond market, where the year bonds plunged to the lowest level since May. In a note, an analyst said:

“A strong number will move yields higher, faster than a weak number will push yields lower, unless the number is very weak.” 

The GBP/USD exchange rate also reacted to the soaring UK bond yields, with the 30-year gilt surging to the highest level since 1997. This surge happened as global investors fell out of favor with long-term dated government bonds and as odds of a more hawkish Bank of England (BoE) rose.

The most recent data showed that the UK’s inflation continued rising in July, moving to 3.6%, the highest level in months.

GBP/USD technical analysis 

The daily timeframe chart shows that the GBP/USD exchange rate has pulled back in the past few weeks, moving from a high of 1.3778 in July to the current 1.3400.

A closer look shows that the pair has formed what looks like a head and shoulders pattern, which often leads to more downside over time.

The pair has moved below the 50-day Exponential Moving Average (EMA) and is at the major support and resistance level of the Murrey Math Lines tool.

Therefore, the pair will likely have a bearish breakdown, with the next point to watch being at the psychological level of 1.3183.

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