GBP/USD oscillates in a range below 1.2200, eyes US NFP for fresh directional impetus

• GBP/USD consolidates its strong recovery gains registered over eth past two days.
• Traders move to the sidelines and keenly await the release of the US NFP report.
• The divergent Fed-BoE policy expectations contribute to capping any further gains.

The GBP/USD pair is seen oscillating in a range during the Asian session on Friday and consolidating its strong recovery gains of over 150 pips registered, from the 1.2035 area, or the lowest level since March 16 touched earlier this week. Spot prices remain below the 1.2200 mark as traders keenly await the release of the closely-watched US monthly jobs data before placing fresh directional bets.

The popularly known NFP report will play a key role in influencing market expectations about the Federal Reserve's (Fed) future rate-hike path. This, in turn, will drive the US Dollar (USD) and provide a fresh directional impetus to the GBP/USD pair. The US economy is expected to have added 170K jobs in September, less than the 187K in the previous month, while the jobless rate is anticipated to tick down from 3.8% to 3.7% during the reported month. A stronger report, meanwhile, would mean more pressure on wages and on inflation, which might force the Fed to stick to its hawkish stance and keep rates higher for longer.

Heading into the key data risk, it has been a mixed week for labour market data. The monthly JOLTS report showed that there were higher than estimated job openings in August, while private payroll numbers from ADP fell short of market expectations. Meanwhile, data released on Thursday showed that Weekly Jobless Claims ticked up from the prior week, though were slightly below expectations. Nevertheless, the incoming US macro data remains consistent with expectations of solid economic growth in the third quarter. Moreover, several Fd officials recently backed the case for at least one more 25 bps lift-off by the year-end.

The prospects for further policy tightening by the Fed remain supportive of elevated US Treasury bond yields and assist the USD in stalling this week's corrective pullback from the YTD. This, along with expectations that the Bank of England (BoE) will again leave interest rates unchanged at its next meeting in November, further contributes to capping the GBP/USD pair. Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom and positioning for an extension of the strong recovery move witnessed over the past two trading days.

Technical levels to watch