GBP/USD climbs towards the 20-DMA, at around 1.1160s, as mood improved

• GBP/USD get a respite after diving 4% in the last four days due to the UK’s bond turmoil.
• Fed’s Mester commented that inflation is “unacceptably high” and estimates that rates will remain higher for longer.
• UK’s unemployment rate edged lower, despite increasing the number of people without a job or looking for one.

The GBP/USD is snapping four days of consecutive losses, though it remains below 1.1186, the 20-day EMA amidst a risk-off impulse in the markets, but not in the FX space, with the greenback remaining on the backfoot. Fears of lower worldwide economic growth, and further central bank tightening, keep traders on their toes.

At the time of writing, the GBP/USD Is trading at 1.1160, above its opening price by 0.98%, after hitting a daily low of 1.0997 early during the European session. So far, US equity markets have made a U-turn, trading in the green, reflecting the sentiment improvement.

The absence of US economic data keeps traders entertained with Fed speaking, led by Cleveland’s Fed President Loretta Mester. She said that even with a large number of rate increases in 2022, the central bank has not achieved its goal and would need to press forward with tightening monetary policy. Mester commented that inflation is “unacceptably high and persistent” while reiterating that she does not expect any rate cuts by 2023.

In the meantime, last Friday’s US Nonfarm Payrolls report showed that the labor market remains tight, albeit hiring was lower than August’s figures. Of note is that the Unemployment Rate decelerated from 3.7% to 3.5%, justifying the Fed’s need for more hikes.

On the UK side, employment data was worse than estimated, as reported by the ONS, that 252K of Britons are not looking working or looking for one, while the ILO Unemployment Rate edged lower from 3.6% to 3.5%. The number of people in employment fell by 109,000 in the June-August period.

That said, sources cited by Reuters estimate that the low unemployment rate and pay rises edging higher will keep the Bank of England on its tightening cycle, as the bank scrambles to tame inflation in two-digit levels.

What to watch

The UK calendar will feature GDP figures for 3-months, annual base reading, Industrial Production, and the Trade Balance. On the US front, the docket will feature Fed speaking and the Producer Price Index (PPI).

GBP/USD Key Technical Levels