- The GBP/USD currency pair briefly reached a four-week high on Tuesday.
- A downward revision in anticipated job growth has bolstered the US dollar amidst speculation of Federal Reserve rate cuts.
- Upcoming inflation data, due next week, will precede the Federal Reserve’s upcoming decision.
On Tuesday, GBP/USD approached its four-week peak, testing levels just above 1.3550 before retreating, thereby ending a two-day winning streak and sending the pair back toward the 1.3500 mark.
This week, the economic calendar has driven attention to inflation metrics, especially since UK data has been less impactful. Markets are reacting to disappointing US labor market statistics, which continue to weigh on investor sentiment.
There’s growing apprehension that the US economy might be losing momentum. The latest annual revision to the non-farm payroll (NFP) indicated an increase of almost 900,000 jobs for the period from March 2024 to March 2025, which was higher than analysts had anticipated. However, the revision period doesn’t reflect post-duty economic impacts, so it remains essential to monitor potential adjustments to job growth forecasts for 2025.
Implications for Federal Reserve Rate Cuts
The NFP is based on data compiled from roughly 120,000 private firms in the US. It’s worth noting that response rates can fluctuate, meaning businesses that cease operations during the response period are simply listed as non-responders.
The Bureau of Labor Statistics (BLS) employs the Quarterly Employment Census (QCEW) to adjust NFP figures annually. This source captures data from about 95% of business operators in the US and offers a more comprehensive view, including businesses that have shut down. Yet, the finalized benchmark revisions for this period won’t be available until February next year.
According to the CME’s FedWatch tool, market expectations suggest a 25 basis point rate cut is likely on September 17th. Some market participants are even pricing in a 17% chance that the Federal Reserve might opt for a more aggressive 50 basis point reduction next week, either driven by economic data or political pressure.
The upcoming US Consumer Price Index (CPI) report, due on Thursday, is anticipated to reveal inflationary pressures still exceeding the Fed’s 2% target. This scenario complicates the Fed’s ability to implement rapid rate cuts, even as the policy rate hovers above R-STAR or exceeds the natural interest rate.
GBP/USD Daily Chart
Pound Sterling FAQ
The Pound Sterling (GBP), established in 886 AD, is the world’s oldest currency and serves as the official currency of Britain. Data from 2022 indicates it ranks fourth in global forex trading, accounting for about 12% of total trades, with an average daily volume of $630 billion. The primary trading pair is GBP/USD, colloquially referred to as “cable,” which makes up 11% of forex volume, alongside GBP/JPY or “dragon” (3%) and EUR/GBP (2%). The currency is issued by the Bank of England (BOE).
The primary factor influencing the value of the pound is the monetary policy set by the Bank of England. The BOE focuses on achieving “price stability,” defined as maintaining a stable inflation rate around 2%. The main tool employed to reach this goal involves adjustments to interest rates. Higher rates may be introduced to combat excessive inflation, which typically strengthens the GBP as it becomes more appealing to global investors. Conversely, if the economy shows signs of slowing down, the BOE might decide to lower rates to stimulate growth by making borrowing cheaper.
Economic data plays a crucial role in assessing the health of the economy, which in turn can affect the GBP’s value. Indicators such as GDP, manufacturing and services PMIs, and employment figures all contribute to market perceptions. A strong economy tends to be favorable for Sterling as it can attract foreign investment, potentially leading to interest rate hikes by the BOE, which would directly benefit the GBP. On the other hand, weak economic data could lead to a depreciation of the currency.
Another significant indicator for the Pound Sterling is the trade balance, which compares a country’s exports to its imports over a period. If a nation has desirable exports, the demand from international buyers can bolster the currency’s strength. A positive trade balance typically enhances the currency value, whereas a negative balance might weaken it.
