British Pound drifts lower below 1.3250 on steady BoE rate path, traders await US jobs data

GBP/USD softens to near 1.3240 in Tuesday’s Asian session.
The US ADP employment data and the US NFP report will be closely watched later this week.
Economists expect the BoE to keep its benchmark interest rate steady at 3.75% through the end of the year.

Lallalit Srijandorn FXStreet

The GBP/USD pair loses traction to around 1.3240 during the Asian trading hours on Tuesday. A potential rate hike from the US Federal Reserve (Fed) provides some support to the US Dollar (USD) against the British Pound (GBP). The US ADP employment data and the US Nonfarm Payrolls (NFP) data will take center stage later this week.

The US central bank decided to leave the interest rates unchanged at its June policy meeting, but policymakers expect a rate hike later this year amid growing concerns about inflation lodged above the US central bank’s 2% target. Traders are now pricing in nearly a 60% probability of an interest rate hike from the Fed by September, according to the CME FedWatch tool.

Traders will take more clues from the US June employment data, which could offer some hints about the Fed’s monetary policy stance. Economists forecast an increase of 110,000 jobs in June and the Unemployment Rate holding steady at 4.3% during the same period.

The candidate for the leadership of the Labour Party and the future Prime Minister of the United Kingdom, Andy Burnham, said on Monday that if elected he would create a government office in Manchester. The office would be named No. 10 North and would become the “nerve center” of a reformed Britain.

Keir Starmer last week faced political pressure and announced he would step down as leader of the ruling Labour Party. The schedule to pick a successor could see Burnham installed as Prime Minister as soon as July 17, if no other challenger emerges.

Economists expect the Bank of England (BoE) to keep its benchmark interest rate steady at 3.75% through the end of the year, following previous pauses, accoring to Reuters.

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

AUD/USD defends 0.7000 ahead of RBA on Tuesday

AUD/USD is defending 0.7000 at the start of a new week, trading near its lowest level since August 4 amid a bullish US Dollar. US yields hold near multi-year highs amid inflation risks from higher oil prices and rising bets on an October Fed rate hike. This, along with the US-Iran standoff, continues to underpin the safe-haven buck and weigh on the pair ahead of Tuesday's RBA policy announcements.

USD/JPY climbs back toward 158.00 after BoJ minutes amid firm USD

USD/JPY finds dip-buyers and reverses part of Friday's slide driven by speculation that authorities will step in again to prop up the Japanese Yen. However, the BoJ's dovish Minutes cap the JPY. Meanwhile, the US Dollar regains traction as the US-Iran standoff supports crude oil prices, fueling inflation fears and reaffirming bets for an October Fed rate hike. This further supports the pair, driving it back toward 158.00.

Gold sheds 3%, eyeing $4,100 on renewed US-Iran risks

Gold is falling hard at the start of a new week, targeting $4,100 for the first time in eight weeks. Firming October Fed rate-hike bets, along with oil-driven inflation risks, keep US bond yields elevated near multi-year highs, helping the US Dollar hold firm, particularly after Trump rejected Iran's truce offer. These factors weigh heavily on the bullion.

Zcash risks a decline below $1,500 as bullish momentum eases

Zcash price hovers below $1,550 on Monday, extending losses after a 4% decline the previous day. Institutional interest in the privacy coin holds firm, recording over $35 million in inflows last week, while retail speculation takes a hit, with ZEC futures Open Interest down around 10% in 24 hours.

Data back in the driver’s seat this week

Markets will look for fresh evidence of a hot US economy from this week as September figures start to flow in. Upside surprises in jobs data could take rate hike pricing for the October FOMC above 20bp. It’s not our baseline though, and we expect some stabilisation with modest downside risks for USD in the coming days. We expect a hawkish hike by the RBA tomorrow.

Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which

The Fed and the BoJ have just done something remarkably similar. Both central banks raised interest rates by 25 bps last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.