GBP/USD slides toward 1.33 as weak UK jobs data fuels BoE rate cut bets
- UK jobless rate ticks up to 4.8% as hiring momentum slows sharply in latest report.
- Traders push back on BoE easing expectations despite soft labor data and sluggish growth signs.
- US Dollar steady ahead of Powell’s speech as US business sentiment declines, signaling possible slowdown.
GBP/USD prolongs its losses for the second consecutive day on Tuesday as soft data in the United Kingdom (UK) justifies the need for lower interest rates by the Bank of England (BoE). The extension of the government shutdown in the US keeps the schedule light, except for Federal Reserve (Fed) Chair Jerome Powell's speech.
Sterling falls for a second day as unemployment rises and wages ease, bolstering dovish expectations
Sterling trades at around 1.3300 after hitting a daily high of 1.3352 and failing to crack last Friday's peak of 1.3370, following the latest employment report in Britain. The data showed that the unemployment rate rose, and wage earnings slowed in the three months to August.
The ILO Unemployment Rate in August increased from 4.7% to 4.8% MoM, while the Employment Change dipped from 232K to 91K, below estimates of 123K people added to the workforce.
Further data showed that Average Weekly Earnings in the three months to August climbed from 4.7% to 5%, but excluding bonuses, dipped from 4.8% to 4.7% for the same period.
This data provides reasons for doves at the Bank of England to cut interest rates. Nevertheless, market participants remain skeptical of further easing this year, as they expect the next cut until March 2026.
Trade tensions between the US and China pushed the US Dollar lower, as depicted by the US Dollar Index (DXY), which tracks the buck’s value against six currencies, down 0.07% at 99.17. Traders are eyeing the Fed Chair Jerome Powell's speech, late in the day.
Data in the US revealed that small business sentiment declined in September, due to expectations of unfavorable operating conditions in the following six months, according to the National Federation of Independent Business (NFIB). The NFIB Business Optimism Index tumbled 2 points to 98.8 last month, the first decline in three months.
GBP/USD Price Forecast: Technical outlook
The technical picture indicates GBP/USD is neutral to downward-biased, and a daily close below 1.3300 could set the stage to test lower prices. Momentum is also bearish as depicted by the Relative Strength Index (RSI).
That said, the first support would be 1.3200. A breach of the latter will expose the 200-day Simple Moving Average (SMA) at 1.3178. Conversely, if GBP/USD climbs above 1.3300, the next resistance would be 1.3350, followed by the 20-day SMA at 1.3434. The next key resistance lies at the 50-day SMA and the 100-day SMA, each at 1.3472 and 1.3488, respectively.
(This story was corrected on October 14 at 15:58 GMT to say that Average Weekly Earnings in the UK climbed from 4.7% to 5%, not from 4.8%)
Pound Sterling 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 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).
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.
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.
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
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
