GBP/USD consolidates in mid-1.2500 amid holiday thinned trade pre-US jobs data

• GBP/USD is trading subdued above 1.2550 amid holiday-thinned trade head of the release of key US jobs data.
• Evidence of cooling of US wage pressures could hit the buck and help GBP/USD challenge weekly highs.
• But the differential between US/UK growth and Fed/BoE tightening expectations makes a longer-lasting rebound more difficult.

With FX markets in wait-and-see mode ahead of the release of official US labour market data for the month of May at 1230GMT and with volumes further hampered amid a second day of market closures in the UK (London being the world’s top FX trading hotspot) as celebrations for the Queen’s platinum jubilee continue, GBP/USD is trading in subdued fashion and flat on the day just above the 1.2550 level.

That leaves the pair about equidistant between earlier weekly highs in the mid-1.2600s and Wednesday’s lows in the mid-1.2400s, as well as equidistant between the 21-Day Moving Average to the downside near 1.2450 and the 50DMA to the upside just above 1.2700. FX market volatility is expected to pick up if there is a significant deviation from expectations in the upcoming US jobs data release.

Analysts have highlighted wage growth metrics as the most important for traders to watch, given the ongoing debate about the state of inflation in the US (has it peaked yet?) and associated discussion about the outlook for the Fed policy outlook. Fed Vice Chair Lael Brainard set a high bar on Thursday for a pause in rate hikes in September following two 50 bps moves in June and July, though a slowdown to 25 bps moves is likely is the Fed does deem inflationary pressures to have eased.

In that regard, any evidence of easing wage pressures (which often then lead to inflation) could see the US dollar weaken and GBP/USD challenge weekly highs once again. But amid the relatively more optimistic story regarding US growth versus UK, and continued expectations for the Fed to be far more hawkish than the BoE in the quarters ahead, the outlook for a sustained GBP/USD rebound, say back into the 1.2800 area of above, doesn’t look great for now.

US ISM Services PMI survey data for May is slated for release at 1400GMT (after the jobs data at 1230GMT) and should highlight robust continued growth in the dominant US service sector. Fed speak will then be back in focus from 1430GMT with more remarks from Brainard.