GBP/USD Has Potential to Rise in Early European Trading

• GBP/USD could strengthen around 1.3560 during early European trading on Tuesday.
• The outlook for a potential reduction in rates by the Federal Reserve is applying some downward pressure on the US dollar.
• Analysts from HSBC and Deutsche Bank have revised their predictions regarding rate cuts by the Bank of England (BOE).

The GBP/USD currency pair is expected to reach approximately 1.3560, marking its highest point since mid-August, during the early European session on Tuesday. The US dollar is likely to depreciate against the pound as it reflects concerns over weaker employment data, which could lead to more significant interest rate cuts by the Federal Reserve. The US Non-Farm Payroll report revision is set to be released on Tuesday.

A recent report indicated a slower job market contraction in August, although unemployment rates have escalated to levels not seen since 2021, impacting labor market conditions in the US, the world’s largest economy.

Analysts had anticipated a downward adjustment of the reserve benchmark for the period from April 2024 to March 2025, with estimates suggesting a potential revision of around 800,000 jobs. This could imply that the US Central Bank is falling behind in its goal to reach maximum employment. Current trading data signals a nearly 89.4% probability that the Fed will implement a 25 basis point rate reduction in its September meeting, with a potential larger cut of 50 basis points also on the table.

On another note, the expectation that the Bank of England may slow down on interest rate cuts could boost the GBP. HSBC has projected that the BOE will maintain its current rate until April 2026, revising prior forecasts that forecasted quarterly cuts to start in August 2024. Similarly, Deutsche Bank has postponed its anticipated rate cut timeline from November to December.