Pound Sterling extends upside against US Dollar ahead of NFP revision report
- The Pound Sterling gains further to near 1.3580 against the US Dollar as the Greenback falters on cooling US job demand.
- Investors await the key US NFP benchmark revision report and the BoE’s Breeden speech.
- Investors expect a 25-basis-point interest rate cut by the Fed next week.
The Pound Sterling (GBP) extends its winning streak for the third trading day against the US Dollar (USD) on Tuesday. The GBP/USD pair posts a fresh three-week high around 1.3580 during the European trading session as the US Dollar slumps ahead of the release of the United States (US) Nonfarm Payrolls (NFP) benchmark revision report, which will be published at 14:00 GMT.
During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts a fresh six-week low around 97.30.
Investors will pay close attention to the US NFP benchmark revision report as it will show deviation in cumulative monthly figures for the year ending March 2025. The final 2025 revision will be implemented in the 2026 Employment Situation release.
The impact of the above-mentioned figures will be significant on the Federal Reserve’s (Fed) monetary policy outlook as the US central bank delivered a 50-basis-points (bps) interest rate cut in the September 2024 meeting after the report showed a downward revision in payroll figures by 818K.
Daily digest market movers: Deteriorating job demand batters US Dollar
- The US Dollar is underperforming its peers on Tuesday as an interest rate cut by the Federal Reserve (Fed) in the monetary policy meeting next week seems a done deal.
- According to the CME FedWatch tool, traders see an 11.6% chance that the central bank will cut interest rates by 50 bps to 3.75%-4.00%, while the rest point a standard 25 bps interest rate reduction.
- Fed dovish speculation has been intensifying due to deteriorating US labor market conditions. The US NFP report for August showed on Friday that employers added 22K fresh workers. Fed rate cut expectations also escalated in early August after July’s NFP report showed a downward revision in payrolls figures for May and June.
- This week, investors will also focus on the US Producer Price Index (PPI) and the Consumer Price Index (CPI) data for August, which will be released on Wednesday and Thursday respectively.
- In the United Kingdom (UK), investors await the speech from Bank of England (BoE) Deputy Governor Sarah Breeden, which is scheduled at 15:15 GMT. Her comments on the likely monetary policy action in the policy meeting next week will be closely monitored. Economists expect the BoE to hold interest rates steady at 4% in next week’s meeting. Breeden was one of five Monetary Policy Committee (MPC) members who voted for reducing interest rates by 25 bps in August.
- This week, investors will also focus on the UK's monthly Gross Domestic Product (GDP) and factory data for July, which will be released on Friday. The economy is expected to have grown at a moderate pace of 0.1%.
Technical Analysis: Pound Sterling climbs to near 1.3580
The Pound Sterling jumps to near 1.3580 against the US Dollar on Tuesday, the highest level seen in three weeks. The GBP/USD pair climbs to near the upper end of the consolidation formed in a range between 1.3333 and 1.3595 in the last four weeks.
The near-term trend of the GBP/USD remains bullish as it trades above the 20-day Exponential Moving Average (EMA), which is around 1.3487.
The 14-day Relative Strength Index (RSI) on the daily chart oscillates inside the 40.00-60.00 range, indicating a sideways trend.
Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the July 1 high near 1.3800 will act as a key barrier.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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