- The Pound Sterling falls slightly to near 1.3735 against the US Dollar due to surprisingly upbeat US JOLTS Job Openings data for May.
- Fed Chair Powell reiterates a “wait and see” approach on the monetary policy outlook.
- BoE Governor Bailey warns of cooling labor market conditions amid global market risks.
The Pound Sterling (GBP) ticks down to near 1.3735 against the US Dollar (USD) during the European trading session on Wednesday. The GBP/USD pair rally stalls after refreshing a three-and-a-half-year high around 1.3800 on Tuesday as the United States (US) currency gains ground, following upbeat JOLTS Job Openings data for May.
The data showed on Tuesday that US employers posted fresh 7.769 million job vacancies, surprisingly higher than 7.395 million in April. Economists expected US firms to have posted 7.3 million jobs.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises to near 96.80. The DXY gained ground on Tuesday, closing the day at 96.64 after bottoming near 96.40 and following a nine-day losing streak.
However, the US Dollar remains broadly under pressure as it continues to face backlash due to United States (US) President Donald Trump’s attack on the Federal Reserve’s (Fed) independence, uncertainty surrounding the July 9 tariff deadline and Trump’s so-called “Big Beautiful Bill”.
Analysts at National Australia Bank (NAB) said, “The confirmation that Trump’s bill is an increase in issuance, an increase in government spending well beyond its means, is not necessarily good news for the Treasury market, and it’s arguably one of the reasons the US Dollar’s going down.”
Daily digest market movers: Pound Sterling trades with caution as BoE Bailey warns of economic risks
- The Pound Sterling trades cautiously against its major peers on Wednesday as Bank of England (BoE) Governor Andrew Bailey has warned of downside United Kingdom (UK) labor market risks and firms’ reluctance to accelerate investment decisions due to global economic uncertainty, while speaking in an interview with CNBC at the European Central Bank (ECB) summit in Sintra, Portugal.
- “Internationally, there is an increase in uncertainty, which is coming through in terms of economic activity and growth,” Bailey said. He added that the labor market is “softening” and explained that when he talks to businesses “what they tell me is that they are putting off investment decisions”.
- At the ECB summit, Bailey didn’t provide any cues about the likely interest rate action in the August monetary policy meeting, but reiterated that the path of interest rates will continue to be “gradually downwards”. Meanwhile, traders see the BoE reducing interest rates twice in the remainder of the year.
- In Wednesday’s session, investors will focus on comments from Monetary Policy Committee (MPC) member Alan Taylor at the ECB summit, scheduled for 10:30 GMT.
- In the US, Trump’s tax and spending cut bill has been passed by the Republican-controlled Senate and has moved to the president’s desk for final approval. This has prompted fears of ballooning US debt, which were already escalated as Moody’s rating downgraded the US Sovereign Credit in May.
- Meanwhile, Trump has criticized Fed Chair Jerome Powell again for not lowering interest rates on a handwritten note stating how much other central banks have reduced their key borrowing rates. Contrary to US president’s support for interest rate cuts, Powell has reiterated the need to learn more about the impact of new economic policies on the economy before considering monetary policy adjustments, while speaking at the ECB summit on Tuesday.
- Going forward, investors will focus on the US Nonfarm Payrolls (NFP) data for June, which is scheduled to be released on Thursday. Ahead of the US NFP report release, investors will pay close attention to the ADP Employment Change data for June, which will be published later in the day, at 12:15 GMT. US private employers are expected to have hired 95K fresh workers, significantly higher than 37K in May.
Technical Analysis: Pound Sterling trades close to three-and-a-half-year high around 1.3800
The Pound Sterling ticks down to near 1.3735 against the US Dollar, but trades well inside Tuesday’s trading range on Wednesday. The overall trend of the pair remains bullish as it trades close to its three-and-a-half-year high around 1.3800 posted on Tuesday.
The upward-sloping 20-day Exponential Moving Average (EMA) near 1.3600 suggests that the near-term trend is bullish.
The 14-day Relative Strength Index (RSI) oscillates inside the 60.00-80.00 range, suggesting that the momentum is on the upside.
Looking down, the June 13 high around 1.3630 will act as a key support zone. On the upside, the psychological level of 1.4000 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.