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- GBP/USD kicks off the new week on a softer note as geopolitical uncertainties support the USD.
- The disappointing US NFP further tempers Fed hike bets, which might cap the upside for the buck.
- Market focus now shifts to this week’s release of US inflation figures and the prelim UK Q2 report.
The GBP/USD pair edges lower at the start of a new week and moves further away from an over three-week high, or levels just above the 1.3500 psychological mark touched on Friday.
The US Dollar (USD) is looking to build on its recovery from the post-NFP swing low amid persistent uncertainties surrounding the Middle East crisis and efforts to reopen the Strait of Hormuz. This, in turn, acts as a headwind for the GBP/USD pair, though the downside seems limited as receding US Federal Reserve (Fed) rate hike bets could limit any meaningful USD appreciation.
The closely-watched US monthly jobs data showed that the economy lost 23Kjobs in July, while the previous month’s reading was revised lower to 20K from 57K, pointing to signs of a cooling labor market. Traders were quick to react and are now pricing in a less than 45% chance that the US central bank will raise borrowing costs in September, down from 67% a week ago.
However, investors are still assigning a greater probability of at least one 25-basis-point (bps) rate increase before the end of this year amid concerns that recovering oil prices will rekindle inflationary pressures. Hence, the focus shifts to the latest US inflation figures, due this week. Apart from this, the incoming geopolitical headlines will drive the USD and influence the GBP/USD pair.
Investors will further confront the release of the prelim UK Q2 GDP report on Thursday, which will play a key role in providing a fresh impetus to the British Pound (GBP). Nevertheless, the aforementioned fundamental backdrop warrants some caution before placing fresh bullish bets on the GBP/USD pair and positioning for an extension of a nearly two-week-old uptrend.
