GBP/USD Extends BoE-Induced Selloff on Upbeat NFP Report

Summary:

The upbeat NFP numbers have put more pressure on the GBP/USD, extending Thursday's selloff for a second day.

The GBP/USD is sharply lower for the 2nd straight day as NFP numbers beat estimates.
GBP/USD fell about 200 pips on Thursday following BoE’s dovish action.
Sentiment remains bearish heading into the weekend.

The GBP/USD has extended Thursday’s huge slide, dropping by 0.28% after the combination of bearish sentiment on the Pound and a stellar Non-Farm Payrolls report out of the US put additional pressure on the pair.

The Bank of England’s decision not to raise interest rates despite mounting UK inflation surprised the markets, leading to a brutal selloff in the Pound on Thursday. Pushing back against the market’s expectations of a rate hike, BoE Governor Andrew Bailey said in an interview with Bloomberg’s Francine Laqua that it was not the bank’s focus to provide any guidance for the markets.

The selloff induced by the BoE’s action has been reinforced after the NFP report showed a positive employment change and a drop in the unemployment rate that beat estimates. The unemployment rate fell from 4.8% to 4.6%, while the US public sector added 531K jobs, which exceeded the 312K jobs added in September.

GBP/USD Outlook

The 2-day steep decline in the GBP/USD has violated 1.34497, bringing the 1.34091 support level into focus. A breakdown of this level targets the 1.32979 support (31 August 2020/22 December 2020 lows). If the bulls fail to defend this support level, 1.31800 could become the next downside destination. 1.30677 lies beneath as a potential support target that remains out of reach at the moment.

On the flip side, a bounce on the 1.34091 support allows for a recovery towards 1.35134. This leaves 1.36117 and 1.36771 to serve as additional targets to the north. 1.37463 remains an additional northside target which is still out of reach for the bulls.