Pound Edges Lower as Dollar Firms Ahead of US Jobs Report

The British pound edged lower against the U.S. dollar on Friday as currency traders positioned themselves ahead of the highly anticipated U.S. non-farm payrolls report, sidelining domestic economic news. The move was part of a broader, albeit modest, strengthening of the greenback before the key data release.

As of 5:10 AM ET, the GBP/USD pair was down 0.11% to $1.3443, according to data from Investing.com. Meanwhile, the EUR/USD was largely flat, trading near $1.1525. The pound's decline was not linked to UK fundamentals but rather to the dollar's performance against other G10 currencies.

Pre-Payroll Positioning Boosts Dollar

Analysts attributed the dollar's modest recovery to several factors ahead of the pivotal jobs data. "The dollar has recovered some ground ahead of today's data," said Francesco Pesole, a forex strategist at ING, in a note.

Pesole pointed to a combination of deteriorating market risk sentiment, a rebound in oil prices amid geopolitical news from the Middle East, and "precautionary dollar buying" as key drivers. He noted these dynamics amplified the dollar's negative reaction following last month's Federal Reserve meeting.

Analysts Eye Key Data Levels

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Strategists suggest that ambiguous messaging from the Federal Reserve's July meeting has left traders on high alert for potential surprises in economic data. ING's economics team forecasts the July non-farm payrolls report will show an increase of 70,000 jobs, which is below the market consensus of 80,000.

ING also anticipates the unemployment rate will tick up to 4.3% due to a rise in labor force participation. The bank believes this scenario "could lead to a slightly softer dollar" but would not substantially change market pricing for a September interest rate cut, which has remained stable.

Outlook for Sterling and Euro

Looking ahead, market participants are focused on next week's U.S. Consumer Price Index (CPI) data, which Pesole suggests may be needed for a "decisive breakout" for the dollar. ING noted that the euro's sensitivity to U.S. data has been increasing, with the last two NFP releases causing a 0.4% move in EUR/USD, well above the recent average.

ING's base case sees EUR/USD remaining within a 1.150 to 1.155 range ahead of the CPI report. The bank maintains a bullish medium-term outlook for the euro, with a year-end target of 1.18, based on an expectation that the dollar will soften as the Federal Reserve remains on hold.