- GBP/USD gains traction near 1.3180 in Friday’s Asian session.
- US private sector employment, according to ADP, rose by 99,000 in August from 111,000 previously.
- Investors see a roughly one-in-four chance that the BoE will cut rates at its September meeting.
The GBP/USD pair is trading in positive territory for the third consecutive day around 1.3180 on Friday during Asian trading hours. The persistent weakness in the US Dollar (USD) is providing some support to the major pair. Markets will closely watch the US Non-Farm Payrolls (NFP) data for August, due out later on Friday.
Automatic Data Processing (ADP) reported Thursday that private sector payrolls grew at the weakest pace in more than three and a half years in August. The U.S. private sector added 99,000 new jobs in August, less than the downwardly revised 111,000 in July and below the forecast of 145,000.
Markets expect the Federal Reserve (Fed) to cut interest rates when it meets on September 17-18. The Bureau of Labor Statistics will release later in the day the much-awaited Nonfarm Payrolls, which is expected to see 160,000 job additions in the US economy in August. This report became a key event in shaping market expectations on the Fed’s policy rate. A weaker than expected outcome could trigger a large Fed rate cut and further undermine the USD.
On the other hand, modest interest rate cut expectations from the Bank of England (BoE) are lifting the British Pound (GBP). BoE Governor Andrew Bailey said last month that he thought long-term inflationary pressures were easing, but that they would not rush into additional rate cuts because it was still too early to declare victory over inflation. Investors see a nearly 25% chance that the BoE will cut interest rates at its September 12 policy meeting, but the likelihood of a cut is fully discounted for November.
The British Pound 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 currency unit in the world, accounting for 12% of all transactions and an average of $630 billion a day, as of 2022.
Its key currency pairs are GBP/USD, also known as the “Cable,” which accounts for 11% of the forex market, GBP/JPY, or the “Dragon” as it is known to traders (3%), and EUR/GBP (2%). The British Pound is issued by the Bank of England (BoE).
The most important factor influencing the value of the British Pound is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on achieving its main objective of “price stability”, i.e. a stable inflation rate of around 2%. Its main tool for achieving this is the adjustment of interest rates.
When inflation is too high, the Bank of England tries to contain it by raising interest rates, making credit more expensive for individuals and businesses. This is generally positive for the GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation is too low, it is a sign that economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to make credit cheaper, so that companies borrow more to invest in growth-generating projects.
The data released gauges the health of the economy and can influence the value of the Pound. Indicators such as GDP, manufacturing and services PMIs, and employment can influence the direction of the Pound.
A strong economy is good for the British Pound. Not only does it attract more foreign investment, but it may encourage the Bank of England to raise interest rates, which will directly strengthen the British Pound. Conversely, if economic data is weak, the British Pound is likely to fall.
Another significant indicator for the pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period.
If a country produces highly sought-after exports, its currency will benefit exclusively from the additional demand created by foreign buyers who wish to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
