February 9, 2025 – Written by David Woodsmith

STORY LINK GBP/USD Forecast: Dollar Survives US Jobs Test, Pound Blocked at $1.2500

The dollar dipped in immediate reaction to the latest US employment report, but quickly regained ground amid firmer underlying data and a smaller than expected benchmark revision.

At this stage, markets do not expect US interest rates will be cut below UK rates over the remainder of this year.

The Pound to Dollar (GBP/USD) exchange rate spiked to near 1.2500 before a rapid retreat to 1.2425.

The Pound to Euro (GBP/EUR) exchange rate settled just below the 1.2000 level amid position adjustment into the weekend.

US non-farm payrolls increased 143,000 for January compared with consensus forecasts of around 170,000, although there was a significant upward revision to the December gain to 307,000 compared with the flash reading of 256,000.

The unemployment rate edged lower to 4.0% from 4.1% previously.

Average hourly earnings increased 0.5% on the month compared with expectations of 0.3% with the annual increase holding at 4.1%.

The BLS also announced annual benchmark revisions with a decline in payrolls of 598,000 over the year, although this was below market expectations of around 800,000.

According to Peter Cardillo, Chief Market Economist at Spartan Capital Securities; “Basically, it’s a report that raises inflation and inflation fears. It means the Fed will probably continue with its wait-and-see attitude, and that wait-and-see might actually have to be longer than perhaps what the market is expecting.”

Markets consider that the chances of a rate cut by June are only just above 50% with the most likely outcome only one cut this year.

MUFG commented; “if there is a knee-jerk drop in yields and the dollar on a weaker print, the one-off risks that may have impacted the data and the FOMC’s strong stance for a pause suggests to us that the move could quickly reverse.”

Domestically, Bank of England MPC member Pill stated that there is an on-going disinflation process in the UK, but added that pay disinflation was not as strong as thought in November.

As far as inflation is concerned, Pill stated that he was optimistic that an upward blip in inflation this year will not lead to second-round effects, but he did state that the bank needed to be vigilant.

He pointed to stagflation risks with comments that underlying pressures remain elevated, but that activity is weaker than expected.

Pill sees scope for gradual and careful rate cuts and he stated that this acts against cutting rates by 50 basis-point increments.

Following Pill’s comments, markets were slightly more cautious over the outlook for three rate cuts this year.

Scotiabank still expressed some reservations over the UK outlook; “BoE forecasts for weak growth and higher inflation may add to concerns that Chancellor Reeves fiscal plans may be disrupted by the sluggish economy.”

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TAGS: Pound Dollar Forecasts

Key Economic Data Fuels BoJ Rate Hike Speculation

Economic data from Japan, including wage growth and household spending, have intensified market expectations for a BoJ policy move. Traders should now turn their attention to upcoming data releases, including machine tool orders and producer prices, which may offer more clues on Japan’s economic outlook.

On February 12, machine tool orders will provide insights into Japan’s industrial demand environment. Economists forecast orders to rise 1.6% year-on-year in January, down from 11.2% in December.

A smaller-than-expected increase may signal a pullback in business investment and industrial production. Downward trends could indicate weaker employment across the manufacturing sector, potentially affecting wage growth. Softer wage growth could curb consumer spending and dampen demand-driven inflationary pressures.

Conversely, larger-than-expected demand for tools could suggest robust production, supporting the labor market and wage growth, a key metric for the BoJ.

Japan Producer Prices and the BoJ Rate Path

While economists consider machine tool orders a barometer of Japan’s manufacturing sector, producer prices will likely impact the USD/JPY pair more. Producer prices are a leading indicator of inflation since producers adjust prices according to demand.

Economists expect producer prices to rise 4% year-on-year in January, up from 3.8% in December.

The GBPCAD price lost the positive momentum recently after reaching 1.8160 level, to activate the correctional bearish track and achieve some gains by declining towards 1.7850, approaching the additional support at 1.7800.

Note that holding within the bullish channel and the consolidation of the MA55 near the mentioned additional support line will reinforce the chances of renewing the bullish attempts, to expect rallying towards 1.7980 soon, followed by attempting to renew the pressure on 1.8070 obstacle.

The expected trading range for today is between 1.7865 and 1.7980

Trend forecast: Bullish

• The dollar collapsed when a 25% tariff meant for Canada and Mexico failed to take off.

• The Bank of England lowered borrowing costs.

• Data on Friday showed a mixed picture of the US labor sector.

The GBP/USD weekly forecast indicates a brief respite for the pound as Trump’s policies weaken the dollar.

Ups and downs of GBP/USD 

The GBP/USD pair had a bullish week despite a rate cut by the Bank of England. The rally came from a decline in the dollar after Trump paused tariffs on Canadian and Mexican goods. 

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On Tuesday, the dollar collapsed when a 25% tariff meant for Canada and Mexico failed to take off. The two countries negotiated better trade deals, giving them more time. Meanwhile, the Bank of England lowered borrowing costs but emphasized the need for caution due to high inflation. Finally, data on Friday showed a mixed picture of the US labor sector, with both jobs and the unemployment rate easing.

Next week’s key events for GBP/USD

Next week, market participants will focus on inflation and retail sales data from the US. Meanwhile, the UK will release figures on manufacturing production and GDP. The US consumer inflation report will shape the outlook for Fed rate cuts. 

In the previous month, the core CPI figure missed forecasts, indicating soft underlying price pressures. As a result, the dollar fell as rate cut expectations rose. Another month of cooler-than-expected inflation might further weigh on the dollar. 

Meanwhile, the UK GDP report will show the state of the UK economy, which has been slowing down. 

GBP/USD weekly technical forecast: Price briefly retreats after channel breakout

On the technical side, the GBP/USD price has broken out of its bearish channel, indicating a bullish shift in sentiment. The price now trades slightly above the 22-SMA, showing bulls are in the lead. However, the RSI remains slightly below 50, a sign that bearish momentum is still strong. 

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GBP/USD has maintained a strong downtrend, making lower highs and lows and breaking past key support levels. However, bears paused when the price hit the 1.2200 support level. Here, price action showed small-bodied candles with large wicks, indicating indecision. 

After that, bulls took charge by breaking above the channel resistance and the 22-SMA resistance. The price is currently retesting the SMA as support. If bulls remain in the lead, the price will climb to the 1.2800 resistance. A break above this resistance would confirm a new bullish trend.

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• Japan released data showing solid wage growth.

• A pause in US tariffs weakened the greenback.

• US employment figures revealed a drop in job growth and lower unemployment.

The USD/JPY weekly forecast is bearish amid increasing bets for a Bank of Japan rate hike, boosting the yen.

Ups and downs of USD/JPY

The USD/JPY pair ended the week lower as the yen rallied against the dollar due to a surge in BoJ rate hike expectations. At the same time, a pause in US tariffs weakened the greenback. 

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BoJ rate hike bets rose after Japan released data showing solid wage growth. 

Meanwhile, the dollar eased as market participants became more convinced that Trump’s tariffs were just a negotiation tactic. He paused tariffs on Canada and Mexico, plunging the dollar. Additionally, employment figures revealed a drop in job growth and lower unemployment, painting a mixed picture of the labor sector.

Next week’s key events for USD/JPY

Next week, traders will focus on data from the US, including consumer inflation, producer inflation and retail sales. The inflation figures will show the state of price pressures, shaping the outlook for Fed rate cuts. 

Last month, inflation came in at 2.9%, nearing the Fed’s 2% target. However, policymakers have remained cautious because it has paused near this level. As a result, the central bank has been waiting for more progress before signaling further rate cuts. Meanwhile, the retail sales report will show the state of consumer spending in the US.

USD/JPY weekly technical forecast: Price targets the 150.06 support

On the technical side, the USD/JPY price is approaching the 150.06 support level after breaking below its bullish trendline. The price trades far below the 22-SMA, showing a strong lead for bears. At the same time, the RSI trades near the oversold region, indicating solid bearish momentum. 

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Bulls paused the previous move when the price got to the 158.54 resistance level. Moreover, although the price made higher highs and lows, it broke below the 22-SMA, indicating a corrective move. At the same time, the RSI failed to enter the overbought region, a sign that either bulls were holding back, or bears were strong too. 

After the corrective move, USD/JPY might make an impulsive leg. Therefore, the price might break below the 150.06 support to reach the 145.00 support. However, the price might retest the 22-SMA as resistance before continuing lower.

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