GBP/USD holds steady near 1.3750, US ADP Employment data in focus

GBP/USD flat lines to around 1.3745 in Wednesday’s Asian session.
Fed's Powell said an interest-rate cut this month cannot be ruled out.
Trump's massive tax and spending bill will go back to the House for final approval.

Lallalit Srijandorn FXStreet

The GBP/USD pair trades on a flat note near 1.3745 during the Asian trading hours on Wednesday. However, the dovish remarks from the US Federal Reserve (Fed) Chair Jerome Powell and rising fiscal worries might weigh on the Greenback in the near term. Investors await the US ADP Employment Change report for June for fresh impetus, which is due later on Wednesday.

The Fed’s Powell said on Tuesday that the US central bank will take a patient approach to further interest rate reductions but didn't rule out a rate cut at the July meeting, but the decision will depend on incoming data. According to the CME FedWatch tool, short-term interest-rate futures are now pricing in nearly a one-in-four odds of a rate cut by the July meeting after the dovish comments, up from less than one-in-five earlier.

Investors are concerned about US President Donald Trump's massive tax-and-spending bill, which could add 3.3 trillion in additional national debt. The bill will return to the House for final approval. Fiscal worries might dampen optimism and contribute to the USD’s downside.

On the GBP’s front, the Bank of England (BoE) Governor Andrew Bailey said last week that there were now signs that the UK labor market was softening, and he highlighted that interest rates are likely to continue falling. The UK central bank is anticipated to cut interest rates three times by the end of 2025, bringing them to 3.5% to combat sluggish economic growth and a weaker labor market. Rate reductions are expected in August, September, and November 2025, with potential quarterly reductions.

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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