GBP/USD consolidates recovery above 1.3600, near weekly highs

• The pound returns above 1.3600 with weekly highs 13650 on sight.
• The US dollar loses steam ahead of Friday's NFP report.
• GBP/USD remains negative while below 1.3914 – Commerzbank.

The British pound has reversed the previous day’s decline on Thursday, buoyed by a somewhat softer tone on the USD. The cable is consolidating above 1.3600 after bouncing from 1.3545 lows, at a short distance to a one-week high of 1.3650.

The pound pares losses against a softer USD

The sterling has appreciated about 0.25% on the day, fuelled by brighter market sentiment and market expectations about a BoE rate hike.

Fears of stagflation have eased on Thursday, as oil prices pulled back from seven-year highs and Russian President, Vladimir Putin, promised to increase gas supplies to Europe. The brighter market sentiment has been reflected in advances on the world’s major stock indexes and has sent the risk-sensitive GBP higher.

Beyond that, market expectations that the Bank of England would lead the rest of the major central banks in raising interest rates remain another source of support for the sterling.  

On the other end, the USD has lost ground with the investors playing a cautious game ahead of the release of US Non-Farm Payrolls data. A strong employment report is expected to prompt the Federal Reserve to announce the end of the Quantitative Easing era, which might set the near-term direction of the greenback.

GBP/USD's bias remains negative while below 1.3914 – Commerzbank

From a broader perspective, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, sees the risk skewed to the downside while below 1.3914: “Currently while capped by 1.3914 we will maintain a negative bias and allow for a scope to the 200-week ma at 1.3161. The recent low is 1.3411.”

Technical levels to watch