• After slumping over 2.0% on Thursday after a dovish BoE policy announcement, GBP/USD is consolidating in the mid-1.2300s.
• Traders are focused on the upcoming release of US jobs data, as well as upcoming commentary from Fed policymakers.
• Bears are eyeing a test of June 2020 lows in the 1.2250 area.

GBP/USD is consolidating at multi-month lows in the 1.2350s ahead of the release of key US labour market data at 1330BST followed by a barrage of commentary from Fed policymakers later in the day. The sterling bears are currently taking a breather after GBP was hammered in wake of a dovish leaning Bank of England policy announcement on Thursday that saw cable drop over 2.0% from the 1.2630s to current levels in the mid-1.2350s.

To recap, the BoE on Thursday raised interest rates by 25 bps as expected to 1.0% and, while a few members of the Monetary Policy Committee (MPC) wanted a larger 50 bps rate hikes, the bank also softened its tone on the need for further tightening. The meeting minutes revealed that two MPC members deemed the reference to further tightening as inappropriate given risks to the economic outlook, which were reflected in the BoE’s new forecasts which signal a risk of a recession in 2023.

Sterling has been battered since mid-April amid a combination of growing pessimism about the outlook for the UK economy and BoE tightening as the UK endures its worst cost-of-living crunch in decades. This has been a major contributor to GBP/USD’s more than 5.0% drop from mid-April levels in the 1.30-31 region, though another driver has been USD strength, as traders price in a more hawkish Fed outlook.

The upcoming US labour market data release and commentary from Fed officials on Friday will be viewed in the context of how it influences market expectations for Fed tightening this year and next. The recent rally in US bond yields, with the 10-year on Thursday moving above 3.0% for the first time since December 2018, suggests markets are pricing for a higher terminal interest rate from the US central bank.

Should that trend continue on Friday, GBP/USD is at risk of further losses. Bears will be eyeing the next key support level in the form of June 2020 lows in the 1.2250 area. To the upside, April lows just above 1.2400 will likely offer resistance, and any such rebound into the 1.2400s might entice sellers.