GBP/USD eyes tentative recovery amid economic headwinds, ahead of US NFP data

• GBP/USD rebounds to 1.2170, despite the UK’s S&P Global Construction PMI plummeting to a concerning 45.0.
• US Dollar Index dips 0.30% to 106.45, influenced by a drop in US bond yields and mixed labor market data.
• GBP/USD remains bearishly biased, with key resistance and support levels in focus ahead of US Nonfarm Payrolls.

The British Pound (GBP) is recovering some ground against the US Dollar (USD), though it remains below the 1.2200 figure capped by weaker UK economic data. A drop in US Treasury bond yields undermines the Greenback amidst a risk-off impulse. The GBP/USD is trading at around 1.2170s, after a bounce of daily lows of 1.2107.

Pound accelerates amid dismal UK economic data and capitalizes its gains on falling US bond yields

The UK economic docket featured S&P Global Construction PMI, which added to a pessimistic economic outlook in the country, with data sliding to 45.0, below the latest reading of 58.0. After the data, S&P Global foresees the economy is languishing, painting a gloomy economic outlook for the UK.

Despite that, the GBP/USD continues to advance due to technical reasons, and US bond yields fall from multi-year high levels. Hence, the US Dollar Index (DXY), which tracks the buck’s performance against its peers, remains soft, posting losses of 0.30%, down at 106.45.

Data-wise, the US Department of Labor revealed that unemployment claims came below estimates at 207K but exceeded the prior week’s 205K, suggesting the labor market is easing but slower than expected by the US Federal Reserve. Additional data showed a contraction of the Trade Balance deficit, as portrayed by data from the Commerce Department in the US.

In the central bank sphere, UK Governor Andrew Bailey remains confident that inflation would fall towards the bank’s target. San Francisco Fed President Mary Daly said monetary policy is restrictive on the US front and adopted a more neutral stance.

The UK economic docket will feature the Halifax House Price Index ahead of the weekend. Across the pond, the Nonfarm Payrolls report for September is widely expected to drop from August’s 187K to 170K, while the Unemployment rate is expected at 3.7%, and Average Hourly Earnings YoY at 4.3%.

GBP/USD Price Analysis: Technical outlook

The upward correction on the GBP/USD could be seen as positioning ahead of the US Nonfarm Payrolls report. Yet, the pair remains bearishly biased, and it could turn neutral once it pierces above the latest cycle high at 1.2271, which could put into play the 1.2300 figure. Of note, the major is testing the 61.8% Fibonacci level drawn from the latest cycle high to its lowest cycle low, potentially suggesting further downside is expected. If GBP/USD resumes its downtrend, the first support would be 1.2100, followed by the October 4 daily low of 1.2037.