The GBP/USD pair picked bids around 1.1470 after a gap down opening as oscillators turned extremely oversold on a smaller timeframe. However, the greenback bulls took charge and defended last week’s closing near 1.1500. A gap-down auction after a blood-spilled Friday indicates that the market sentiment has not changed overnight and more downside could be witnessed by the market participants. Also, the asset has continued its six-day losing streak as the cable is auctioning below Friday’s low.
The asset displayed a vulnerable performance on Friday as the US Nonfarm Payrolls (NFP) data remained upbeat. The US economy has managed to create 315k jobs in August vs. the expectation of 300k and the prior release of 526k. Higher-than-expected performance by the US economy on the employment generation front strengthened the US dollar index (DXY).
The DXY managed to establish above the round-level hurdle of 109.00 and is expected to accelerate gains further as robust employment data will delight the Federal Reserve (Fed) to escalate interest rates unhesitatingly. However, the Unemployment Rate shored up to 3.7% against the forecast and the former print of 3.5%.
Also, the economic catalyst that could impact the DXY is the Average Hourly Earnings, which remained stagnant. The labor cost index landed at 5.2, similar to its prior close but lower than the consensus of 5.3%. Optimism brewed on stellar job creation is offset by subdued labor cost data.
On the pound front, soaring inflation expectations have accelerated recession fears. As per Citi's survey, long-term inflation expectations have soared to 4.8% against the desired target of 2% by the Bank of England (BOE). Adding to that, the annual inflation rate is expected to hit 13%. A shift in inflation stance from runaway to galloping is sufficient to push the UK economy into the recession phase.
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