British Pound tests 1.3500 as US Dollar struggles to shake off NFP shock

• GBP/USD edges slightly higher on Monday but struggles to hold above the 1.3500 level.
• Weak US employment figures released on Friday continue to weigh on the US Dollar.
• Investors now await US inflation data and UK GDP figures later this week.

GBP/USD trades around 1.3495 on Monday at the time of writing, up a modest 0.04% on the day. However, the pair struggles to hold firmly above the psychological 1.3500 level after benefiting on Friday from a decline in the US Dollar (USD) triggered by disappointing United States (US) employment data.

The Nonfarm Payrolls (NFP) report released on Friday showed that the US economy lost 23K jobs in July. The figures fuel concerns about a slowdown in the US labor market and reduce expectations of monetary tightening by the Federal Reserve (Fed).

Markets now see less than a 45% chance of a Fed interest-rate hike in September, down from around 67% a week earlier. This shift in expectations limits the US Dollar's ability to rebound and allows GBP/USD to remain close to its recent highs.

The Greenback nevertheless attempts to stabilize on Monday, supported by persistent geopolitical uncertainty in the Middle East and around the Strait of Hormuz. The prospect of a recovery in Oil prices could also keep inflationary pressures elevated in the US and preserve the possibility of another Fed rate hike later this year.

Investors' attention therefore turns to upcoming US inflation figures, which could provide fresh clues about the interest-rate outlook. Higher-than-expected inflation could revive hawkish Fed expectations and support the US Dollar, while easing price pressures could reinforce the recent momentum in GBP/USD.

On the United Kingdom (UK) side, investors await the preliminary Gross Domestic Product (GDP) estimate for the second quarter on Thursday. The UK economy is expected to expand by 0.4% in the second quarter, slowing from 0.6% previously. On a monthly basis, GDP is expected to decline by 0.1% in June after rising by the same amount in May. A surprise in these figures could determine whether the British Pound (GBP) has enough support for GBP/USD to establish a more sustained move above 1.3500.

GBP outlook hinges on Q2 UK GDP as markets price further BoE tightening

Strategists at Brown Brothers Harriman expect UK growth momentum to cool in the coming quarter, noting that “UK real GDP growth [is set] to slow in Q2,” with Thursday’s release seen showing activity expanding “0.4% q/q vs. 0.6% in Q1.” They highlight that the BoE is even more cautious, as “the Bank of England (BoE) projects a softer print of 0.3% q/q as lower household real income growth, and tighter financial conditions weigh on domestic demand activity,” and that “the BoE forecasts consumption growth to ease to 0.3% q/q in Q2 vs. 0.6% in Q1.”

Against this backdrop, BBH warns that “absent a GDP beat, UK rate pricing looks vulnerable to a dovish repricing against GBP,” given that “the swaps curve continues to imply 50bps of BoE tightening to 4.25% in the next twelve months.” They stress that such an outcome “would leave the policy rate above the BoE’s estimated neutral range (2.00%-4.00%) when the UK economy is operating well below potential.”

GBP/USD technical analysis

In the one-hour chart, GBP/USD trades at 1.3496. The pair holds a mild bullish bias as it trades above the 100-period simple moving average (SMA) around 1.3461 and the 200-period SMA near 1.3432, while supported by an upward support currently around 1.3440. The Relative Strength Index (RSI) hovering just above 60 hints at firm but not overstretched upside momentum, suggesting dips into nearby support may attract buyers as long as the price stays anchored above the shorter and longer-term SMAs.

On the topside, immediate resistance emerges at the horizontal barrier near 1.3509, with a subsequent cap seen around 1.3558 if bulls extend the advance. On the downside, the first line of defense is the 100-period SMA at 1.3461, followed by the trend-line around 1.3440 and then the 200-period SMA near 1.3432, where a break lower would weaken the current constructive tone and expose deeper retracements.

(The technical analysis of this story was written with the help of an AI tool. Know more.)