GBP/USD hits a three-week low below 1.2400 on robust US data

• GBP/USD extends its fall, hitting a three-week low of around 1.2397 amid the fading fear of a possible US default and buoyant market sentiment.
• The robust US labor market report from the Bureau of Labor Statistics and an unexpected Philadelphia Fed Manufacturing Index recovery apply downward pressure on the pair.
• Bank of England speakers suggest a gradual and predictable approach to Quantitative Tightening, providing little support for the Pound.

GBP/USD prolongs its falls past the 1.2400 figure, reaching a new three-week low at around 1.2397, as the Pound Sterling takes a hit, taking advantage of a light economic calendar in the United Kingdom (UK). Fears of a possible default in the United States (US) are fading, as talks between US Congress leaders and the White House showed hope that an agreement would emerge before June 1. The GBP/USD is trading at 1.2423 after hitting a daily high of 1.2492.

Positive US labor market and fading default fears weighed on the GBP

US equities are trading mixed, though earlier it rode a wave of optimism, posting gains due to a buoyant market atmosphere. Discussions regarding the US debt ceiling remain ongoing, underscored by recent statements from US House Speaker Kevin McCarthy. McCarthy stressed the critical need for an agreement this week, reiterating the urgency for Congress to vote to avert a potential default in the forthcoming week.

The US Bureau of Labor Statistics (BLS) released a robust labor market report. Initial Jobless Claims for the week ending May 13 recorded a lower-than-expected rise of 242K, a noticeable drop from the previous week’s 254K. It’s noteworthy, however, that the prior week’s figures were somewhat distorted due to fraudulent claims reported in Massachusetts.

In the meantime, although negative, the Philadelphia Fed Manufacturing Index outperformed expectations, with the index dropping to -10.4, better than the anticipated fall of -19.8, and showed a significant recovery from April’s dismal -31.3. This upturn primarily stems from a rebound in new orders, despite a decline in the employment component and a rise in the price gauge. The increase in producer prices might discourage the Federal Reserve (Fed) from putting its tightening cycle on hold.

Following the release of the data, the GBP/USD dropped from around 1.2440s. The pair fell sharply toward its weekly low before reclaiming the 1.2400 figure. The greenback continued to rise in the day, as shown by the US Dollar Index, which measures the buck’s performance against a basket of six currencies; it is up 0.66%, at 103.541, eyeing a test of the 2017 high oat 103.820.

Regarding the central bank speakers, Dallas Fed President Lorie Logan said that data this time does not support skipping rate hikes at the next meeting, adding that the Fed has not made the progress we need on inflation.

Meanwhile, the UK economic docket featured Bank of England’s (BoE) speakers, who commented that Quantitative Tightening (QT) would be gradual, predictable, and not an active policy instrument. They added that it has some economic effects but is fairly small. BoE’s Michael Ramsden said, “We’re probably going to have several years to go for QT.”

GBP/USD Technical Levels