Pound Sterling wobbles against US Dollar on absence of US economic data releases
- The Pound Sterling trades sideways around 1.3440 against the US Dollar on the halt of key US economic data releases.
- Fed dovish bets remain firm amid cooling US job market.
- BoE’s DMP survey signals slowdown in the UK labor market.
The Pound Sterling (GBP) trades in a tight range around 1.3440 against the US Dollar (USD) during the European trading session on Friday. The GBP/USD pair consolidates as the US Dollar (USD) trades sideways, with investors struggling to find fresh cues regarding the economic outlook in the wake of partial government closure.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, wobbles around 97.90 at the time of writing.
Partial US government shutdown has resulted in halt of key economic data releases, including the Nonfarm Payrolls (NFP) report that was scheduled for this Friday, as a number of statistical agencies have been called off work due to the stoppage of government funding.
Investors were awaiting the US official employment release to get fresh cues on the Federal Reserve’s (Fed) monetary policy outlook. Currently, there is an 87% chance that the Fed will cut interest rates at all remaining policy meetings this year, according to the CME FedWatch tool.
Meanwhile, the US ADP Employment Change figures for September showed on Wednesday that the private sector saw a reduction in labor force by 32K employees. Economists had anticipated that 50K fresh workers were added in that period. Additionally, the report revealed that 3K employees were laid off in August against the previously calculated addition of 54K workers.
Daily digest market movers: Pound Sterling trades calmly against its peers
- The Pound Sterling trades broadly calm against its major peers on Friday while it will likely face selling pressure amid growing United Kingdom (UK) labor market concerns.
- Bank of England’s (BoE) Decision Maker Panel (DMP) survey showed on Thursday that firms' year-ahead expectations for employment came in flat in the three months to September. This is the first time since the quarter to November 2020, when companies didn't anticipate increasing their staff numbers.
- The survey also showed that 12-months forward expected CPI inflation by the UK firms edged slightly higher to 3.5% in the quarter to September.
- The scenario of sticky inflation outlook and slowing job market would force BoE officials to perform a delicate balancing act in the upcoming policy meetings.
- This week, BoE Deputy Governor Sarah Breeden argued in favour of reducing interest rates, citing economic risks that could bring inflation lower. On the contrary, BoE Deputy Governor Clare Lombardelli and Monetary Policy Committee (MPC) member Catherine Mann warned that recent inflation shocks should not be considered as temporary.
- In the August policy meeting, the BoE stated that inflationary pressures could peak around 4% in September.
Technical Analysis: Pound Sterling struggles to return above 20-day EMA
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The Pound Sterling oscillates this Friday inside the previous day's trading range around 1.3450 against the US Dollar. The GBP/USD pair struggles to return above the 20-day Exponential Moving Average (EMA), which trades around 1.3476.
The 14-day Relative Strength Index (RSI) rebounds to near 47.00. The pair would remain sideways if the RSI stays in the 40.00-60.00 range.
Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the September 17 high of 1.3726 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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