GBP/USD hovers around 1.2030s on upbeat sentiment, soft US Dollar

• The British Pound clings to gains on optimistic sentiment and a weaker US Dollar.
• US Jobless Claims were aligned with estimates, showing the labor market remains tight.
• Traders expect a 25 bps rate hike by the Federal Reserve on February 2023.
• GBP/USD Price Analysis: Failure to crack 1.2100 will exacerbate a fall below 1.2000.

The Pound Sterling (GBP) remains sideways during the North American session after hitting a daily low of 1.2005 against the US Dollar (USD). Risk aversion spurred by factors linked to China’s learning to live with the coronavirus keeps investors uneasy. Meanwhile, the latest unemployment claims report shows the US labor market remains tight. At the time of writing, the GBP/USD is trading at 1.2033.

US Initial Jobless Claims failed to underpin the US Dollar

Wall Street is poised for a higher open, mimicking European stock indices. The US Bureau of Labor Statistics (BLS) revealed that Initial Jobless Claims for the week ended on December 24 rose by 225K, in line with expectations. The same report showed that continuing claims jumped to 1.7 million in the week that ended on December 17, the highest since early February.

Will the Federal Reserve hike 50 or 25 bps in February 2023?

Even though the US Federal Reserve (Fed) has lifted rates towards 4.50% during 2022 to tame inflation. The US Fed Chairman, Jerome Powell, and Co., have stressed that the labor market is tight and that the unemployment rate should be higher due to the imbalance between labor supply/demand. As the year’s end approached, the CME FedWatch Tool shows investors expect a 25 bps rate hike in the February 1 meeting, while Eurodollar futures show traders estimating a 50 bps lift.

Falling US bond yields lift the GBP/USD

Elsewhere, the GBP/USD is driven by the US Dollar dynamics due to the lack of UK economic data. The US Dollar Index (DXY), a gauge that tracks the US Dollar value against a basket of six currencies, tumbles 0.36%, down to 104.093, weighed by falling US Treasury yields. The US 10-year benchmark note rate drops three bps, yielding 3.856%.

What to watch

On Friday, the UK economic docket is empty, while the US calendar will feature the Chicago PMI for December, estimated at 40.

GBP/USD Price Analysis: Technical outlook

From a daily chart perspective, the GBP/USD upside was capped by the 200 and the 20-day Exponential Moving Average (EMA), each at 1.2111 and  1.2082. Oscillators like the Relative Strength Index (RSI) and the Rate of Change (RoC) suggest that sellers are beginning to gather momentum, even though the GBP/USD is edging up. That said, the GBP/USD first support would be the last week’s low of 1.1997. Break below will expose the 50-day EMA at 1.1936, followed by the 100-day EMA at 1.1884.