GBP/USD flat lines above 1.3450 as traders eye US jobs data

GBP/USD holds steady near 1.3465 in Thursday’s early European session.
Traders prefer to wait on the sidelines ahead of the key US employment data on Friday.
A cautious tone surrounding the BoE policy outlook could support the Pound Sterling.

Lallalit Srijandorn FXStreet

The GBP/USD pair trades on a flat note around 1.3465 during the early European trading hours on Thursday. Markets turn cautious as traders await the upcoming key US economic data this week. The weekly US Initial Jobless Claims report is due later in the day ahead of the highly anticipated Nonfarm Payrolls (NFP) reading.

The US jobs data for December will be in the spotlight on Friday, as it might offer cues about the interest rate path. The US NFP is expected to rise by 60,000 in December. Meanwhile, the Unemployment Rate is estimated to tick lower to 4.5% in December from 4.6% in November. If the reports show stronger-than-expected outcomes, this could weigh on expectations for further US Federal Reserve (Fed) easing, which might lift the Greenback against the Pound Sterling (GBP).

Nonetheless, a dovish stance from the Fed officials could undermine the USD and act as a tailwind for the major pair. Fed Governor Stephen Miran, whose term at the US central bank ends later this month, said on Tuesday that aggressive US interest rate cuts are needed this year to keep the economy moving forward. Additionally, Minneapolis Fed President Neel Kashkari stated that he sees a risk that the jobless rate could "pop" higher.

The Bank of England (BoE) is expected to follow a gradual monetary easing path in 2026 as inflation is well above the central bank’s 2% target. This, in turn, could provide some support to the Cable. Financial markets expect the UK central bank to deliver at least one rate reduction in the first half of the year and are pricing in nearly a 50% odds of a second cut before the year-end, according 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.

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