GBP/USD Forecast: Pound Sterling benefits from improving risk mood

GBP/USD rose above 1.2600 following Friday’s bearish action.
Improving market mood makes it difficult for the USD to find demand on Monday.
The pair’s near term technical outlook is yet to show a buildup of recovery momentum.
GBP/USD lost nearly 100 pips on Friday and closed the previous week virtually unchanged. With the positive shift seen in market sentiment not allowing the US Dollar to preserve its strength early Monday, however, the pair managed to recover above 1.2600.

Reflecting the improving risk mood, the UK’s FTSE 100 Index opened higher and was last seen rising 0.7% on the day.

Pound Sterling price today
The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies today. Pound Sterling was the strongest against the Japanese Yen.
The USD rallied decisively ahead of the weekend and caused GBP/USD to turn south. The data from the US showed that Nonfarm Payrolls rose 187,000 in August, against the market expectation of 170,000. The Unemployment Rate rose to 3.8% in the same period, while annual wage inflation, as measured by the change in Average Hourly Earnings, edged lower to 4.3% from 4.4%.
As these readings painted a mixed picture of labor market conditions, the probability of the Federal Reserve raising the policy rate one more time by 25 basis points (bps) this year held steady at around 30%. Nevertheless, with American investors heading into a long weekend, the USD seemingly benefited from profit-taking and position readjustments late Friday.

There won’t be any high-tier data releases from the US in the second half of the day and GBP/USD’s action is likely to turn subdued, with trading conditions thinning out on the Labor Day holiday in the US.

In case risk flows continue to dominate the market action early Tuesday, however, GBP/USD could look to extend its recovery.
GBP/USD was last seen trading within a touching distance of 1.2640 (50-period Simple Moving Average (SMA) on the 4-hour chart, static level). A 4-hour close above that level could open the door for another leg higher toward 1.2680 (100-period SMA) and 1.2700 (psychological level, Fibonacci 23.6% retracement of the latest downtrend).

On the downside, 1.2600 (psychological level, static level) aligns as first support before 1.2560 (static level, end-point of the downtrend) and 1.2500 (psychological level).