Pound Sterling rebounds against US Dollar on optimism over US-China trade

• The Pound Sterling recovers against the US Dollar as investors' risk appetite improves on hopes of de-escalation in the trade war between the US and China.
• The Fed is expected to keep interest rates steady, while the BoE is almost certain to cut them next week.
• Investors await the US NFP data for April, which will influence the Fed's monetary policy outlook.

The Pound Sterling (GBP) bounces back to near 1.3320 against the US Dollar (USD) on Friday after a three-day correction. The GBP/USD pair gains as the market sentiment has turned cheerful after comments from the Chinese Commerce Ministry increased hopes of a de-escalation in the trade war between the United States (USD) and China. 

On Thursday, the Chinese ministry signaled that the country is ready to discuss trade terms with Washington but emphasized that talks should be based on "sincerity". "China says the door is open to trade talks with the US and urged the US to demonstrate sincerity if it wants trade talks," Bloomberg reported.

Investors have taken these comments from Beijing as a constructive step towards resolving trade disputes between the world's two largest nations. The optimism on Sino-US trade resolution has resulted in an increase in demand for risk-perceived currencies. 

Market participants believe that Beijing won't need to sell its products into other markets if the US continues to buy them. Investors were worried about fears that China would dump its products into European and Asian economies if its tariff war with the US continues. Given China's low-cost competitive advantage, the competitiveness of products from other nations would have diminished in the global market. Such a scenario would have been unfavorable for their economic growth.

Though investors have underpinned the Pound Sterling against the US Dollar, it is underperforming among more risky peers on firm expectations that the Bank of England (BoE) will reduce interest rates by 25 basis points (bps) to 4.25% in its policy meeting on Thursday. 

The reasons behind firm BoE dovish bets are global economic uncertainty in the face of tariffs announced by US President Donald Trump, a weak labor market outlook due to the increase in employers' contribution to social security schemes, and softer-than-expected United Kingdom (UK) inflation data for March.

Daily digest market movers: Pound Sterling gains against USD ahead of US NFP data

• The Pound Sterling trades higher against the US Dollar in Friday's European session. The pair rises as the US Dollar retraces ahead of the United States (US) Nonfarm Payrolls (NFP) data for April, which will be published at 12:30 GMT. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, corrects to near 99.85 from an over two-week high of 100.38.
• Investors will pay close attention to the US official employment data as it will indicate to what extent the tariff policy by President Donald Trump has impacted the job growth. The labor market data will also influence market expectations for the Federal Reserve's (Fed) monetary policy outlook.
• The US economy is expected to have added 130K fresh workers, significantly lower than the March reading of 228K. The Unemployment Rate is estimated to have remained steady at 4.2%. Meanwhile, Average Hourly Earnings, a key measure of wage growth, is expected to have grown at a faster pace of 3.9% on year compared to the prior release of 3.8%. On a monthly basis, the wage growth measure is expected to have grown at a steady pace of 0.3%.
• Until the US labor market shows steady hiring, the Fed is unlikely to make monetary policy adjustments and will mainly focus on curbing elevated consumer inflation expectations. The ISM Manufacturing Prices Paid index showed on Thursday that input costs continued to grow at a faster pace. Business owners will eventually pass on higher costs to consumers, which will feed into inflation and limit the scope of monetary policy easing by the Fed. On the contrary, signs of slowing job growth would force the Fed to prioritize employment over inflation.
• After NFP, the next trigger for the US Dollar will be the Fed's monetary policy decision, which will be announced on May 7. According to the CME FedWatch tool, traders are almost fully pricing in that the central bank will keep interest rates unchanged in the range of 4.25%-4.50%.

Technical Analysis: Pound Sterling recovers from 1.3260

The Pound Sterling recovers from the weekly low of 1.3260 against the US Dollar on Friday. The pair corrected in the last three trading days from the three-year high of 1.3445. The overall outlook of the pair remains bullish as all short-to-long Exponential Moving Averages (EMAs) are sloping higher.

The 14-day Relative Strength Index (RSI) strives to return above 60.00. A fresh bullish momentum would trigger if the RSI manages to do so.

On the upside, the three-year high of 1.3445 will be a key hurdle for the pair. Looking down, the April 3 high around 1.3200 will act as a major support area.