GBP/USD hovering between 1.3500-1.3550 levels post-hakwish Fed minutes as traders await Friday’s US jobs report

• GBP/USD has remained supported above 1.3500, but failed to rally about 1.3550 as traders await Friday’s key US jobs report.
• The dollar has so far failed to see broad strength in wake of the latest hawkish Fed minutes.
• USD bulls may be waiting for the report to confirm progress to the Fed’s full-employment goal before chasing USD higher.

GBP/USD continues to trade on the back foot on Thursday as the US session gets underway, despite a weaker than expected US December ISM Services PMI survey, having failed to recover back to the north of the 1.3550 mark earlier. At current levels in the 1.3520s, the pair is trading lower by about 0.2% or 30 pips on the day, and about 0.5% below Wednesday’s pre-hawkish Fed minutes highs at 1.3600. Some FX strategists are surprised that the dollar hasn’t strengthened more in wake of the latest Fed minutes, having been surprised by the apparent appetite amongst FOMC members for a faster pace of tightening (using rate hikes and quantitative tightening).

Its probably worth noting that even if the dollar does start to pick up in the coming sessions, sterling is likely to hold up better than other G10 currencies given that the BoE is already and set to remain well ahead of the Fed when it comes to monetary policy normalisation (both in terms of rate hikes and expectations for imminent QT). For now though, GBP/USD remains well supported above the 1.3500 level, having fended off a test of it earlier in the session.

December jobs report looms

USD bulls seem to be waiting for a “green light” in the form of a strong US December jobs report before chasing the dollar higher. Ahead of Friday’s key report, which the median economist forecast suggests will show 400K jobs being added to the US economy, taking the unemployment rate lower to 4.1% from 4.2%, labour market indicators have been strong. Weekly jobless claims and continued jobless claims in December fell below pre-pandemic levels. The November JOLTs report showed that, heading into December, the number of job vacancies far outnumbered the number of unemployed persons and that quits (a lead indicator of wage pressures) hit a record high above 4M.

Meanwhile, the ADP report on Wednesday estimated December employment change at double expectations at over 800K. Tuesday’s ISM Manufacturing PMI saw its employment subindex rise to 54.2, its highest since H1 2021 and while Thursday’s ISM Services PMI fell to 54.9 from 56.5, survey participants continued to complain of personel and skills shortages. The suggestion is that either Friday’s NFP numbers is very strong, which the Fed would see as a bullish indicator of further rapid progress to their goal of full employment, or the number is weak, but only as a result of lack of labour supply. The latter, while a less favourable outcome, is likely to still be interpreted as evidence of further progress to full-employment, given that the Fed has recently come to the conclusion that it may take some time for labour supply to properly recover and they need to “work with what they’ve got” in terms of the current, smaller labour market when making policy.