The Pound Sterling has observed a surge against the US Dollar due to lower US job vacancies and a slowdown in private employment growth. This has led to the GBP/USD pair reaching near 1.3180 in Thursday’s North American session. The weak data for August from the US ADP Employment Change further supported the notion of deteriorating labor market conditions, putting pressure on the US Dollar.
Private payrolls data showed hiring of 99K job-seekers in August, falling short of investor expectations of 145K. This unexpected decline has led to speculations of the Federal Reserve potentially starting an aggressive policy-easing process. As a result, there is a possibility for the Fed to reduce interest rates by 50 basis points to 4.75%-5.00% in the upcoming September meeting based on the CME FedWatch tool.
The upcoming US Nonfarm Payrolls (NFP) data for August will be a crucial factor for the US Dollar. The Fed is increasingly concerned about preventing job losses, and the data will play a significant role in determining the direction of the currency. At the same time, the US Dollar has found some support with the unexpected expansion in the US ISM Services PMI for August. This resulted in the US Dollar Index (DXY) finding support near 101.00.
The Pound Sterling’s strength has been fueled by the upbeat economic outlook in the UK, leading to market expectations of a shallower policy-easing cycle by the Bank of England (BoE) compared to other central banks. The final estimate for S&P Global/CIPS PMI data showed a faster expansion in overall economic activity in the UK in August, with a focus on the manufacturing and services sectors. The BoE is expected to maintain interest rates at 5% this month, with a potential cut in November or December.
From a technical analysis perspective, the Pound Sterling is aiming to recapture the 1.3200 level against the US Dollar. The currency pair has shown strong buying interest near the breakout region of an upward-sloping trendline, indicating a strong bullish trend. The 14-day Relative Strength Index (RSI) suggests a resumption in bullish momentum. Resistance levels for the Pound Sterling are seen at 1.3500 and 1.3640, with crucial support at 1.3000 for the bulls.
Overall, the Pound Sterling’s recent gains against the US Dollar have been driven by a combination of factors including weaker US employment data, potential Fed rate cuts, and a positive economic outlook in the UK. Investors will be closely monitoring upcoming economic data releases and central bank decisions to gauge the currency’s future direction.
