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Feb 03 - 11:55 AM

GBP/USD - COMMENT-Massive US Payrolls Beat Charts A Lower Course For Sterling

By Paul Spirgel  —  Feb 03 - 10:15 AM

GBP/USD slumped in early NorAm to a 3-week low on Friday after U.S.
data beat forecasts by a prodigious 332,000, sending sterling below key Fibo support at 1.2145, which may portend further weakness.

Surging U.S. Treasury yields emboldened the dollar, which kicked cable down to 1.2065 in short order from 1.2240 before the release, with resurgent Fed rate expectations in the belly of the U.S. Eurodollar strip pressuring sterling further.

However, the sterling-positive rate advantage once priced in for 2024 -- a key source of the pound's recent strength -- has evaporated, with futures 0#ED:0#SON3: now tipping in the dollar's favor across the strip.

With risks that British inflation may lead to a deeper recession, UK rate futures in 2026 and 2027 are pricing below U.S. rates.

The BoE's less-hawkish rate stance -- including two votes to hold steady when the bank hiked by 50bp on Thursday and dropping forceful inflation-fighting language from its statement -- GBP/USD bears are likely to target the 200-DMA at 1.1957 and the Jan.
6 2023 low at 1.1842.

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Refinitiv IFR Research/Market Commentary


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