GBP/USD consolidates its recent fall to over 2-year low, eyes US NFP for fresh impetus

• GBP/USD enters a bearish consolidation phase and oscillates in a narrow range on Friday.
• A combination of factors prompts some USD profit-taking and offers support to the pair.
• A bleak outlook for the UK economy continues to weigh on the GBP and caps the upside.
• Hawkish Fed expectations should limit any deeper USD pullback ahead of the NFP report.

The GBP/USD pair struggles to capitalize on the overnight late bounce from levels just below the 1.1500 psychological mark and oscillates in a narrow band on Friday. The pair is placed around mid-1.1500s and remains well within the striking distance of its lowest level since March 2020 touched on Thursday.

The US dollar eases a bit from a fresh two-decade peak set the previous day, which turns out to be a key factor offering some support to the GBP/USD pair. Signs of stability in the financial markets, along with a softer tone surrounding the US Treasury bond yields, undermine the safe-haven buck. That said, hawkish Fed expectations should help limit any deeper USD pullback.

In fact, the markets seem convinced that the US central bank will stick to its policy tightening path to tame inflation and have been pricing in a supersized 75 bps rate hike at the September FOMC meeting. The bets were reaffirmed by the recent hawkish remarks by several Fed officials. This, in turn, should act as a tailwind for the US bond yields and lend support to the greenback.

Apart from this, a bleak outlook for the UK economy might have dampened the prospects for further rate hikes by the Bank of England. This is reinforced by the fact that the British pound, so far, has struggled to attract any buyers despite rising bets for a 75 bps BoE rate hike in September. This, in turn, suggests that the path of least resistance for the GBP/USD pair is to the downside.

Traders, however, seem reluctant and prefer to wait for the release of the closely-watched US monthly jobs data. The popularly known NFP report will provide a fresh insight into the economy's health in the face of rising rates and stubbornly high inflation. This, in turn, should influence the near-term USD price dynamics and determine the next leg of a directional move for the GBP/USD pair.

Technical levels to watch