The pound recoups post-BoE losses versus the US Dollar as focus turns to the US NFP report

FUNDAMENTAL
OVERVIEW

USD:

The US Dollar had a good
run last week on some unwinding of overstretched US Dollar shorts and mostly
stronger US data. The bullish momentum eventually faded as we got a very weak
US Job Openings report that coupled with the selloff in the stock market
weighed on the market pricing. The focus has now turned to the US NFP report on
Wednesday as that’s going to be pivotal for the US Dollar.

In fact, the market is
pricing 54 bps of easing for the Fed this year, so there’s a high risk of a
hawkish repricing in case the data comes out strong. In such a scenario, we
will likely see the greenback rallying across the board.

On the other hand, a weak
report should strengthen the case for more Fed easing and might even see
traders bringing forward rate cut bets as some Fed members expressed scepticism
about labour market stabilisation. In that case, the US Dollar will likely come
under renewed pressure on dovish Fed bets.

GBP:

On the GBP side, the
BoE surprised with a dovish hold last week as 4 members dissented for a rate
cut versus the 2 expected. Moreover, they changed the guidance in the statement
from “the bank rate is likely to continue on a gradual downward path”
to “the bank rate is likely to be reduced further”. A clear dovish guidance.

Inflation forecasts were
also revised much lower across the board. Lastly, the Agents’ Pay Survey showed
wage growth to average 3.4% in 2026 vs 3.5% expected. Traders are now pricing a
60% chance of a rate cut at the next meeting already. The data will still guide the central bank’s decisions but for now the expectations are for a more dovish path.

GBPUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME

On the daily chart, we can
see that GBPUSD experienced a meaningful pullback soon after
breaking into a new cycle high. We had a major trendline around the 1.3450
level where the dip-buyers could have stepped in to position for new highs, but
the price bounced near the 1.35 handle. There’s not much we can glean from this
timeframe so we need to zoom in to see some more details.

GBPUSD TECHNICAL ANALYSIS –
4 HOUR TIMEFRAME

On the 4 hour chart, we can
see that we have a downward trendline defining the bearish momentum on this timeframe.
The sellers will likely lean on the trendline with a defined risk above it to
position for a drop into the major trendline targeting a breakout. The buyers,
on the other hand, will look for a break higher to increase the bullish bets into
a new cycle high.

GBPUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME

On the 1 hour chart, we can
see that we have a minor support zone around the 1.3590. If the price pulls
back into the support, we can expect the buyers to step in with a defined risk
below the support to position for a break above the trendline. The sellers, on
the other hand, will look for a break lower to increase the bearish bets into the
major trendline. The red lines define the average daily range for today.

UPCOMING CATALYSTS

Tomorrow we get the US December Retail Sales and the US Employment Cost Index
data. On Wednesday, we have the US NFP report. On Thursday, we get the UK Q4
GDP and the US Jobless Claims figures. On Friday, we conclude the week with the
US CPI report.