Sterling struggled to remain resilient against the US Dollar (USD) knocking GBP/USD to its lowest level since March just below 1.2050. Although GBP/USD has seen a rebound ahead of the weekend, it still remains in sight as attention turns to the US Consumer Price Index (CPI) and Gross Domestic Product (GDP) in the coming week.
What happened last week?
The declining sentiment around the GBP/USD pair was primarily driven by monetary policy and macroeconomic divergences between the US and the UK, justifying the continued uptrend in the US Dollar (USD) and US Treasury yields. There was little from the UK side that affected the valuation of the pound.
Earlier in the week, market bets on one more rate hike by the US Federal Reserve (Fed) before the end of this year gathered momentum, helped by an unexpected increase in US JOLTS Job Openings data. The U.S. Labor Department said on Tuesday that job openings unexpectedly rose by 690,000 to 9.610 million in August, the biggest increase in more than two years. The data pointed to a persistently tight labour market in the United States that could force the Fed to raise interest rates next month.
The US Dollar reached new 11-month highs of 107.35 against its major foreign exchange rivals, sending GBP/USD to a new seven-month low of 1.2037. The greenback also capitalized on the late passage of a funding bill in Congress over the weekend with overwhelming support from Democrats to avoid the fourth partial shutdown of the federal government in a decade.
Before the weekend, the September jobs report showed that 336,000 new jobs were created in the US in September. The market's initial reaction caused GBP/USD to turn lower as the figure far exceeded the market's expectation of 170,000. However, after falling below 1.2150, the pair regained traction and returned to the 1.2200 area.
The direction will be determined by inflation and GDP
The first top economic data from the UK will be released on Thursday, which will be the monthly GDP report for August. Industrial production and trade balance data for the month will also be reported at the same time.
However, on Thursday, the main risk will be the US CPI inflation data, which is likely to revise market expectations for the Fed's next policy move.
GBP/USD broke the downtrend after Thursday's close above the downtrend resistance at 1.2180. The break to the upside suggests that buyers in the pound could be poised for a sustained recovery in the week ahead.
