GBP/USD settles into holding pattern ahead of key US NFP jobs data

GBP/USD spun a tight circle near 1.3430 on Thursday.
Cable traders are hunkering down ahead of Friday’s bombshell NFP print.
Broad-market Fed rate cut hopes are pinned on a continued easing in US job creation.

Joshua Gibson FXStreet

GBP/USD slowed to a crawl on Thursday, remaining stuck close to 1.3430 after a volatile showing through the week’s earlier sessions. US Nonfarm Payrolls (NFP) are always a high-impact affair, but this Friday’s US jobs showdown has taken on an even greater importance than usual.

Markets are clamoring for an interest rate cut from the Federal Reserve (Fed) this month, and tunnel-vision traders are cheering on a deepening slump in US employment data. Despite a near-term uptick in inflation data effectively wiping out the year’s progress on taming inflation, investors are hoping that a souring US labor market will force the Fed to disregard inflation pressures and deliver interest rate cuts before the end of the third quarter to prop up the domestic economy’s job creation.

Potential for a real bombshell in US NFP this month

Interest rate expectations are playing a dangerous game of chicken between inflation, job creation, and recession indicators: investors remain convinced that the US economy is in such a rough spot that immediate action from the Fed is required, but not in such bad shape that a full-blown recession will hit businesses and consumers still grappling to figure out life with ever-changing tariffs under Donald Trump’s presidential regime.

United Kingdom (UK) Retail Sales are due early on Friday, and are expected to show a sharp slowdown to 0.2% in July from the previous 0.9%. Overall market reaction is likely to be muted ahead of August’s upcoming US NFP, however. The latest US net job additions figures are expected to hold on the low side at a sluggish 75K to keep rate cut hopes alive.

Rate markets fully price in a September rate cut

According to the CME’s FedWatch Tool, rate markets are pricing in a functionally done deal on an interest rate cut on September 17, with odds of a 25 basis point cut this month set at 99.4% as of writing. Interest rate traders are also pricing in better-than-even odds of a follow-up cut in October, but slightly higher odds of a delay to December, before odds finally converge on a third interest rate cut in January of 2026.

GBP/USD daily chart

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

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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