GBP/USD licks BOE-led wounds near two-year low under 1.2400, inflation, US NFP in focus

• GBP/USD pares the biggest daily loss since March 2020 with minor gains.
• BOE raised inflation forecasts to double digit, triggered stagflation fears while announcing a 25 bps rate hike.
• Brexit woes also test cable buyers as DUP lags in NI elections.
• USD regains upside momentum amid doubts over Fed’s preference for 50 bps rate lift, increasing the importance of US employment data.

GBP/USD bears take a breather around 1.2370, consolidating the post-BOE slump around a two-year low during early Friday morning in Asia. The cable’s latest moves could be linked to the market’s anxiety ahead of the US employment report for April. However, the bears keep reins amid broad inflation fears, as well as negative headlines concerning Brexit.

The Democratic Unionist Party’s (DUP) struggle in the North Ireland (NI) elections, raise Brexit fears as Irish Republican Party member Sinn Fein is known to unite Ireland with the bloc. On the same line are the recent allegations that Brexit is the cause of rallying chicken prices in Britain, as well as Spain’s hard stand against British immigrants and visitors.

More important than the Brexit, GBP/USD bears cheer the broad inflation fears and concerns that the UK economy may witness recession in the years to come, mainly due to the double-digit CPI. The Bank of England (BOE) raised the benchmark interest rate by 25 basis points (bps) the previous day, matching market forecasts, but triggered broad pessimism with its economic projections.

The same helped the US dollar to regain its upside momentum as the greenback bulls doubt the Fed’s expectations of easing inflation and employment crunch at home. As a result, today’s US Nonfarm Payrolls (NFP), expected to ease to 391K from 431K, will be crucial to watch. Also important will be the US Unemployment Rate which may also decline to 3.5% from 3.6% in April.

Also read: US April Nonfarm Payrolls Preview: Analyzing gold's reaction to NFP surprises

Additionally important for the GBP/USD traders to watch are the headlines concerning Brexit and comments from the various central bank speakers, scheduled for release during the US session.

Technical analysis

GBP/USD stays on the way to June 2020 low surrounding 1.2250 unless crossing the immediate hurdle, namely the weekly swing high close to 1.2640.