GBP/USD rebounds to mid-1.2500s amid better risk appetite as focus turns to US jobs data

• Better risk appetite has seen GBP/USD rebound to the mid-1.2500s on Thursday despite UK market closures.
• But the pair remains at risk of further downside if upcoming US data points to further economic strength there.

Despite the closure of UK markets for the rest of the week amid public holidays to commemorate the Queen’s platinum jubilee as head of state, and the lower than unusual trading in volumes in global FX markets as a result, sterling is one of the better performing G10 currencies on Thursday. A rebound in global risk appetite after yesterday’s more risk-off session, as evidenced in US equities trading higher in the pre-markets, seems to be the main culprit behind GBP/USD’s 0.5% rally on Thursday from the 1.2460s to current levels near 1.2550.

But that still leaves GBP/USD trading lower by roughly 0.6% on the week and nearly 1.0% lower versus earlier weekly highs in the upper 1.2600s. Though the pair is still trading higher by over 3.0% versus last weak’s lows after the US dollar was weakened in recent weeks as the idea that inflation in the US might have already peaked gained traction, divergence in the outlook for US/UK economic growth and Fed/BoE monetary policy remains a major headwind for the pair.

Wednesday’s UK and US PMI data for May highlighted this. The rest of the week will of course be quiet in terms of the UK economic calendar, but quite the opposite for the US. First up on Thursday, US payroll company ADP’s estimate of private employment change in May will be released at 1215GMT and will, as usual, help market participants guage their expectations for Friday’s official non-farm payrolls change figure.

Continued robust employment gains would add further evidence to the idea that the US economy is holding up well for now and could weigh on GBP/USD once again between now and the end of the week. Traders should also keep an eye on remarks from typically quite hawkish Fed policymaker Loretta Mester later in the US session, who will likely double down on the Fed’s guidance towards several further 50 bps rate hikes at upcoming meetings.