Pound Sterling climbs against the US Dollar as US job market weakens

Pound Sterling Strengthens Against the US Dollar

Pound Sterling (GBP) is set to rise close to 1.3500 against the US Dollar (USD) during Thursday’s trading in Europe. The GBP/USD pair has seen gains as the US dollar struggles, particularly in light of a slowing job market and the potential for a government shutdown.

Currently, the US Dollar Index (DXY), which measures the value of the dollar against six major currencies, is trading near its weekly lows around 97.50, indicating vulnerability.

On Wednesday, the US ADP Employment Change Report indicated a reduction of 32,000 jobs in the private sector for September, diverging from economists’ expectations of a 50,000-job increase. Furthermore, it was noted that 3,000 positions were lost in August, compared to the previously reported 54,000 hires.

The slowdown in the US job market is prompting speculation about potential interest rate cuts from the Federal Reserve this year. According to the CME FedWatch tool, traders largely expect the Fed to lower rates by 25 basis points to the range of 3.75%-4.00% in its upcoming policy meeting.

Currency Market Overview

Pound Sterling had a mixed performance against key peers, but concerns among Bank of England (BOE) officials about the UK’s economic outlook create uncertainty for the currency’s future.

BOE Deputy Governor Sarah Breeden highlighted that prolonged tight monetary policies might push inflation below its 2% target. She cautioned that maintaining such policies for too long could lead to inflation risks.

Breeden’s comments appear to have shifted expectations regarding inflationary pressures, possibly heightening the anticipation for interest rate cuts by the BOE in the near future.

In an August meeting, the BOE forecasted that price pressures would peak at around 4% in September, and a recent survey revealed a slight rise in the projected inflation rate among UK companies to 3.5%.

In the US, there are fears that the White House may need to announce significant layoffs due to an impending government shutdown, which would further affect the job market. A spokesperson noted, “Unfortunately, Democrats have shut down the government, leading to potential job cuts.”

The U.S. Department of Labor is expected to delay releasing unemployment claims data for the week ending September 27 due to the ongoing government closure.

Technical Analysis of Pound Sterling

Pound Sterling is on track to continue its upward trend against the US Dollar for the fifth consecutive day. The GBP/USD pair is trying to exceed the 20-day exponential moving average (EMA), which is currently around 1.3485. A move above this EMA could signal a positive shift in the short-term trend.

However, if the 14-day relative strength index (RSI), sitting at 50.61, remains between 40.00 and 60.00, the pair might remain stagnant.

Support is noted at the low of 1.3140 from August 1, while the peak of 1.3726 on September 17 acts as a significant resistance level.