Pound Sterling walks on thin rope as US NFP data looms

• The Pound Sterling trades sideways near 1.2800 against the US Dollar ahead of the US NFP data for May.
• US NFP will significantly influence expectations for Fed interest-rate cuts in September.
• The UK’s strong wage growth remains a major driver of stubborn service inflation.

The Pound Sterling (GBP) consolidates in a tight range near 1.2800 against the US Dollar (USD) in Friday’s London session. The GBP/USD pair struggles for a direction as investors await the United States (US) Nonfarm Payrolls (NFP) report for May, which will provide new clues about the health of the country’s labor market.

The employment report is expected to show that employers added 185K payrolls, higher than the 175K jobs added in April. The Unemployment Rate is estimated to have remained steady at 3.9%. Investors will also pay attention to the Average Hourly Earnings data, which gauges wage growth momentum. Annual Average Hourly Earnings are forecasted to have grown steadily by 3.9%. On a monthly basis, wage growth is estimated to have risen at a higher pace of 0.3% from the former 0.2% increase.

Stronger-than-expected wage growth and payroll data would weaken expectations for the Federal Reserve (Fed) to start reducing interest rates from the September meeting, while weak numbers will boost them.

Daily digest market movers: Pound Sterling consolidates ahead of US NFP

• The Pound Sterling ranges near 1.2800 against the US Dollar ahead of the US NFP report, which will influence market speculation for Fed rate cuts in September. The official employment data will show the impact of the Fed’s restrictive monetary policy framework on labor demand.
• Recently, many labor market-related economic indicators have pointed to normalizing job conditions. The US JOLTS Job Openings data for April and ADP Employment Change for May showed that fresh openings and private payrolls, respectively, were lower than expected. Also, the US Department of Labor said on Thursday that Initial Jobless Claims for the week ending May 31 increased more than expected. This adds to evidence that the labor market is losing strength.
• Rising doubts over the US job market have prompted market speculation for the Fed to begin lowering its key borrowing rates in September. The CME FedWatch tool shows that traders see a 68% chance for rate cuts in that month,  up from the 54.5% recorded a week ago.
• In the United Kingdom, the Pound Sterling will be guided by the Employment data for the February-April period, which will be published on Tuesday. The country’s number of employed people has declined for three consecutive times. Indication of more layoffs would hurt the Pound Sterling as it would boost traders’ bets for early rate cuts by the Bank of England (BoE). 
• Investors will also focus on the UK Average Earnings data, a measure of wage growth. UK’s strong wage growth momentum has remained a major driver to high service inflation, which has been a barrier for price pressures in returning towards the 2% target.

Technical Analysis: Pound Sterling trades sideways near 1.2800

The Pound Sterling trades inside Thursday’s trading range ahead of the US NFP data for May. The GBP/USD pair struggles to break decisively above 1.2800. However, the Cable’s near-term outlook remains firm as it trades above 1.2770, the 78.6% Fibonacci retracement support (plotted from the March 8 high of 1.2900 to the April 22 low at 1.2300).

The Cable is expected to remain in the bullish trajectory as the 20-day and 50-day Exponential Moving Average (EMA) at 1.2710 and 1.2650, respectively, are sloping higher, indicating a strong uptrend.

The 14-period Relative Strength Index (RSI) has shifted into the 40.00-60.00 range, suggesting that the momentum has leaned toward the upside.