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GBP/USD Soars as Market Anticipates US Jobs Data: What’s Driving the Rally?

The GBP/USD pair is on an impressive ascent, hitting near 1.2700 as traders gear up for the latest US employment data. Here’s a quick look at the key drivers behind this movement.

Key Points:
📈 GBP Strengthens on UK Data: UK’s upbeat consumer credit and PMI data bolster the British Pound.
📉 US Dollar Faces Pressure: Despite strong employment figures, lower Treasury yields challenge the Greenback.
🕒 Anticipated US Data Release: All eyes on forthcoming US Nonfarm Payrolls and other key economic indicators.

GBP/USD Daily Chart

As of 5 January 2024, the GBP/USD currency pair continues its upward trajectory, marking the third consecutive day of gains. Trading around 1.2690 during the Asian session on Friday, the pair reflects a dynamic interplay between the strengthening British Pound and a wavering US Dollar.

In the United Kingdom, recent economic reports have shown encouraging signs, lending support to the Pound. November saw a notable increase in consumer credit, jumping to £2.005B from a revised £1.411B the previous month. The S&P Global/CIPS Composite PMI for December also indicated a positive trend, improving to 52.1 from 51.7, with the Services PMI concurrently rising to 53.4.

Despite these gains, the Pound faces potential headwinds. The UK’s economic outlook remains clouded with uncertainty, prompting calls from corporate leaders for the Bank of England to cut interest rates. This sentiment is echoed in the Institute of Directors Economic Confidence Index, which highlights a decline in optimism among UK business directors for the country’s economic prospects in the next year.

Across the Atlantic, the US Dollar Index (DXY) exhibits stability after recent losses, hovering around 102.40. A decrease in the yields of US Treasury bonds, specifically the 2-year and 10-year notes, adds pressure to the USD. The yields currently stand at 4.37% and 3.99%, respectively.

However, the US Dollar found some support following the release of optimistic employment data. The ADP Employment Change for December reported an addition of 164K new jobs, surpassing both previous figures and market expectations. Initial Jobless Claims also showed a decline, further bolstering the USD’s position.

The market now awaits further data from the US employment sector, including pivotal reports such as the Nonfarm Payrolls (NFP) for December and Average Hourly Earnings. The upcoming ISM Services PMI will also offer critical insights into the state of the US service sector, potentially impacting currency dynamics and investor strategies in the forex market.