GBP/USD Price Analysis: Pound Pares Gains Ahead of US NFP

• Unemployment claims in the US rose to a two-month high last week.

• The dollar gained when Fed policymakers made hawkish remarks on Thursday.

• Markets are expecting a drop in US employment.

The current GBP/USD price analysis leans towards the bearish side, influenced by the dollar’s surge amidst dwindling Fed rate cut expectations. Moreover, the dollar is steady ahead of the crucial US monthly employment report. 

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The greenback has fluctuated wildly in the past week as investors adjust their expectations for Fed rate cuts. At first, poor data on service activity and unemployment claims had investors gaining confidence that the Fed would cut rates starting in June. Consequently, the GBP/USD pair rallied to new highs. 

However, the trend reversed when Fed policymakers made hawkish remarks later on Thursday. Some officials have lost confidence that inflation will soon reach the 2% target as it has stalled. As such, they called for patience as the Fed needs more time to assess incoming data. 

Moreover, if inflation remains hot, there might be no need for a rate cut this year. These remarks had traders scaling back rate-cut bets, with most now expecting the first cut in July. However, the rate cut outlook might change again when the nonfarm payroll report is released. Markets are expecting a drop in employment. A bigger-than-expected drop might have policymakers rethinking their recent statements.

Meanwhile, data showed that the UK economy gradually emerged from its shallow recession. Composite data showed a slight drop in activity, although it held above 50 in expansion. If the economic outlook brightens, it might allow the BoE to hold rates for longer as inflation trends lower. 

GBP/USD key events today

• US average hourly earnings
• US employment change
• US unemployment rate

GBP/USD technical price analysis: Price shatters resistance trendline, embraces bullish trend

On the charts, the GBP/USD price has broken above a strong resistance trendline, reversing the trend to bullish. The price made a big bullish candle that broke above the 30-SMA, indicating a shift in sentiment. Meanwhile, the RSI finally broke above 50, a strong resistance separating bearish from bullish momentum.

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The price has retreated to retest the SMA, while the RSI retests the 50 level. Given the bullish bias, the price might soon bounce higher to make a new high above the 1.2650 key resistance.

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