GBP/USD analysis ahead of US non-farm payrolls data

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jan 6, 2022
  • The GBP/USD pair has been in a strong bullish trend in the past few weeks.
  • It has risen by more than 3% from its lowest level in December.
  • We explain what to expect ahead of the US non-farm payrolls data.

The GBP/USD pair retreated on Thursday as investors reflected on the latest FOMC minutes and the services PMI numbers from the UK. The pair is trading at 1.3522, which is about 0.53% below the highest level on Wednesday.

FOMC minutes

The Federal Reserve published minutes of the December meeting on Wednesday. These minutes showed that the bank’s officials were starting to change their views about inflation.

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In most of 2021, Fed officials like Jerome Powell made the case that the current inflation pressures were only transitory. 

This view started changing in November when the bank started tapering its asset purchases by about $15 billion. 

In December, the bank decided to increase the size of its asset tapering to $30 billion. The goal was to end the quantitative easing (QE) in March this year.

Turns out, the Federal Reserve is more hawkish than that. Minutes published on Wednesday showed that the bank expects to start hiking interest rates this year. The closely-watched dot plot predicted that the bank will implement three hikes.

Focus now shifts to the upcoming American non-farm payrolls numbers scheduled for Friday. Economists polled by Reuters expect the data to show that the economy added more than 400k jobs while the unemployment rate declined to 4.1%. 

On Wednesday, preliminary data by ADP showed that the country added more than 800k jobs in December after adding 505k jobs in the previous month. Strong jobs numbers will give the Fed more incentives to push rates higher soon.

The GBP/USD also declined after the strong UK services PMI numbers. Data published by Markit showed that the services PMI increased to 53.6 in December. The same is true with the composite PMI number.

GBP/USD forecast

GBP/USD

The four-hour chart shows that the GBP/USD pair has been in a bullish trend in the past few weeks. It has jumped by about 3% from its December lows. At the same time, it has moved above the 25-day and 50-day moving averages and the ascending trendline shown in green. The pair has also risen above the Ichimoku cloud. 

Therefore, the pair will likely keep rising considering that the Bank of England (BOE) seems to be more hawkish than the Fed. The next key level to watch will be at 1.3600.

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