Pound Sterling rises ahead of US NFP, factory data

• The Pound Sterling edges higher against the US Dollar ahead of key US data on the horizon.
• US NFP and the Manufacturing PMIs could influence the Fed interest rate path.
• The BoE is expected to cut interest rates only once in the remaining two meetings this year.

The Pound Sterling (GBP) edges higher to near 1.2900 against the US Dollar (USD) in Friday’s London session after posting a fresh 11-week low near 1.2850 on Thursday. The GBP/USD pair is broadly weak with investors focusing on the United States (US) Nonfarm Payrolls (NFP) data for October, which will be published at 12:30 GMT. The official labor market data will influence market expectations for the Federal Reserve (Fed) interest rate path for the remainder of the year.

The NFP report is expected to show that the economy added 113K new workers, less than half of 254K jobs created in September. Economists expect the Unemployment Rate to remain steady at 4.1%. Consensus for the NFP data appears to be diverging when compared with Wednesday’s ADP Employment Change data, which showed that 233K new workers were hired by the private sector in October and pointed to an improvement in labor market conditions.

Also, Initial Jobless Claims data for the week ending October 25 fell to 216K against estimates of 230K, the lowest level in almost 22 weeks. Signs of improving labor demand would diminish the risks of an economic downturn and would allow the Fed to follow a more gradual rate-cut path. According to the CME FedWatch tool, the central bank is expected to cut interest rates by 25 basis points (bps) in both policy meetings in November and December.

In Friday’s North American session, investors will also focus on the Average Hourly Earnings and the ISM Manufacturing PMI data for October. Average Hourly Earnings, a key measure of wage growth, is estimated to have grown steadily by 4% on year. Month-on-month, the wage growth measure is expected to have risen by 0.3%, slower than the 0.4% increase seen in September. As for the PMI data, the index is expected to increase to 47.6 from 47.2 in September, signaling that activity in the US manufacturing sector contracted again but at a slower pace.

Daily digest market movers: Pound Sterling gains sharply as traders pare BoE dovish bets

• The Pound Sterling strengthens against its major peers on Friday as traders reassess the amount of interest-rate cuts that the  Bank of England (BoE) is expected to deliver for the remainder of the year. 
• The BoE is expected to cut interest rates once in any of the two meetings in November and December. According to Reuters, traders see an 80% chance that the BoE will cut its key borrowing rates by 25 basis points (bps) on Thursday, pushing them lower to 4.75%.
• On the contrary, analysts at the Bank of Montreal (BMO) expect the BoE to leave interest rates unchanged at 5% in its meeting on Thursday due to various factors. "Considering the composition of the MPC, and the effect the budget measures will have on the BoE projections and on inflation persistence, we think at least 5 [policymakers] may well vote for an unchanged Bank Rate."
• Market speculation for BoE interest rate cuts has reduced after the United Kingdom (UK) Chancellor of the Exchequer unveiled a 40 billion pounds worth of tax increase, the highest since 1993, and measures to increase fiscal deficit to revive public spending and boost investment. Also, the Office for Business Responsibility (OBR) raised inflation forecasts for 2024 and 2025 to 2.5% and 2.6%, respectively, prompting traders to further pare back BoE rate-cut bets.

Technical Analysis: Pound Sterling stays afloat above 200-day EMA

The Pound Sterling remains vulnerable near the fresh 11-week low of around 1.2850 against the US Dollar, which was posted on Thursday. The near-term trend of the GBP/USD pair remains uncertain as it stays below the 50-day Exponential Moving Average (EMA), which trades around 1.3060 but has found a cushion near the 200-day EMA around 1.2850.

The GBP/USD pair also delivers a breakdown of the Rising Channel chart formation on the daily time frame, which results in a bearish reversal.

The 14-day Relative Strength Index (RSI) slides back into the 20.00-40.00 range, signaling a fresh bearish momentum.

Looking down, the round-level support of 1.2800 will be a major cushion for Pound Sterling bulls. On the upside, the Cable will face resistance near the 50-day EMA around 1.3060.