GBPUSD backslides after BoE rate cut with NFP looming ahead

• GBP/USD heads for 1.2700 after slumping to a one-month low.
• The BoE cut rates as expected, easing the GBP lower.
• US data sparked fresh fears of a recession, NFP data looms on Friday.

GBP/USD found a new hole in the floor on Thursday, declining towards the 1.2700 handle after fresh recession fears off the back of a miss in US Purchasing Managers Index (PMI) figures that mixed poorly with easing Pound Sterling flows after the Bank of England (BoE) delivered a broadly-expected quarter-point rate trim.

Forex Today: Markets’ attention shifts to US NFP

Friday’s upcoming US Nonfarm Payrolls (NFP) will be a critical print this week after the Federal Reserve (Fed) laid out the track needed in economic data to deliver a widely-anticipated rate cut in September. Investors will be hoping for a continued, but not too steep, decline in new jobs additions in July. US NFP is expected to ease down to 175K net new hirings for the month compared to the previous month’s 206K. 

US Initial Jobless Claims for the week ended July 26 rose to 249K from the previous week’s 235K, lurching past the forecast uptick to 236K. July’s US ISM Manufacturing Purchasing Managers Index (PMI) tumbled to an eight-month low of 46.8 compared to the previous 48.5 and entirely reversing the forecast move up to 48.8.

ISM Manufacturing Prices Paid in July accelerated to 52.9 versus the previous 52.1, missing the forecast decline to 48.8 as input prices for manufacturers continue to drift higher than markets anticipated even as activity declines.

The markets are currently facing a delicate balancing act, with economic downturns increasing expectations for a rate cut from the Fed. The CME's FedWatch Tool shows that traders are pricing in a 100% chance of at least a quarter-point rate cut on September 18, with a one-in-five chance of a 50 basis points cut. However, if the downturn becomes too severe, it could negatively impact market sentiment, rendering any rate cuts from the Fed irrelevant. This puts investors in a challenging position, as they are hoping for rate cuts based on soft data, but not wishing for a scenario where the US economy experiences a hard landing.

GBP/USD technical outlook

Thursday’s 1% decline in the Cable dragged bids into the low end, smashing through the 50-day Exponential Moving Average (EMA) at 1.2789 as price action turns notably bearish. The pair is still trading above the 200-day EMA at 1.2667, but bidders are running out of breathing room as short pressure continues to build.

GBP/USD is down -2.43% and counting from a recent 12-month high of 1.3045 hit in recent weeks. The last chance for a bullish recovery will be at the last swing low into 1.2600.

GBP/USD daily chart