GBP/USD retreats from 1.3600 on strong US jobs data

• US Jobless Claims drop to 217K; Services PMI beats, while Manufacturing disappoints.
• UK Flash PMIs show layoffs rising, reinforcing BoE rate cut expectations for August.
• Interest rate differential favors Dollar as BoE seen cutting, while Fed stays on hold.

The GBP/USD rally stalls as the Greenback stages a recovery, pushing the pair down over 0.24% after registering three straight days of gains that fell short of cracking the 1.3600 figure. Positive economic data in the US triggered a reaction from investors, who trimmed the odds of additional cuts by the Federal Reserve. The pair trades at 1.3548.

Cable falls 0.24% to 1.3548 after upbeat jobless claims and PMI data reduce Fed cut odds and widen rate gap

The US Bureau of Labor Statistics (BLS) reported that the number of claims for the week ending July 19 fell short of estimates, coming in at 217,000, below the 227,000 forecast by analysts, down from 221,000 registered the previous week. Although it’s the lowest level seen since mid-April, Continuing Claims were little changed at 1.96 million, hovering around the highest levels since 2021, which suggests that unemployed workers are struggling to find new jobs.

Hence, the Unemployment Rate could rise, which is expected to tick up to 4.2% in the July Nonfarm Payrolls report, due in the following week.

US business activity figures for July were mixed, according to S&P Global. The Manufacturing PMI contracted down from June’s 37-month high, hinting at a deterioration in business conditions. The index came at 49.5, down from 52, below estimates of 52.5. Contrarily, the Services PMI expanded by 55.2, exceeding forecasts of 53 and up from 52.9 in June.

In the UK, Flash PMIs showed that business activity increased modestly in July, though employers laid off people at the fastest pace in five months, revealed S&P. A further deterioration in the British labor market could prompt the Bank of England (BoE) to reduce interest rates in August.

Investors are pricing in an 80% chance of a quarter of a percentage point rate cut by the BoE at the August meeting, with an additional one-point cut towards the end of the year. Contrarily, the Fed is expected to keep rates unchanged next week, though traders are pricing in 42 basis points of easing. Therefore, the interest rate differential so far favors the Dollar, so further downside in GBP/USD is expected.

Ahead in the week, the economic docket will feature UK Retail Sales data on July 25. Across the pond, traders will eye the release of Durable Goods Orders ahead of the July 30 Federal Open Market Committee (FOMC) monetary policy decision.

GBP/USD Price Forecast: Technical outlook

After the GBP/USD climbed above the 20-day Simple Moving Average (SMA) at 1.3555, it has retreated below the latter, an indication that buyers are lacking the strength of pushing the spot price above 1.3600. The Relative Strength Index (RSI) shows that bullish momentum is fading, with sellers moving in, as depicted by price action.

If GBP/USD prints a daily close below July 23 low of 1.3515, this would form a ‘bearish engulfing chart pattern’ an indication that bears beat the bulls at around the 1.3515-1.3600 range, opening the door for a test of 1.3500.

On further weakness, GBP/USD could test the current week’s low of 1.3402, followed by June 23 low of 1.3369. Conversely, if buyers push the pair above the 20-day SMA, look for a test of 1.3600.