GBP/USD trades with negative bias around 1.2425 area, US NFP report awaited

GBP/USD remains depressed for the second straight day amid the BoE’s dovish outlook.
The BoE cut interest rates by 25 bps on Thursday and signaled further rate cuts this year.
Subdued USD price action helps limit the downside ahead of the crucial US NFP report.

Haresh Menghani FXStreet

The GBP/USD pair struggles to capitalize on the overnight bounce from a multi-day low and trades with a mild negative bias, around the 1.2425 area during the Asian session on Friday. This marks the second straight day of a downtick, though it lacks follow-through as traders seem reluctant to place aggressive bets and opt to wait for the release of the US monthly jobs data.

The popularly known Nonfarm Payrolls (NFP) report is expected to show that the world's largest economy added 170K jobs in December, down from 256K in the previous month. Meanwhile, the Unemployment Rate is expected to hold steady at 4.1%. This, along with Average Weekly Earnings, will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide some meaningful impetus to the GBP/USD pair.

Heading into the key data risk, expectations that the Federal Reserve (Fed) will stick to its easing bias and lower borrowing costs twice by the end of this year keep the US Treasury bond yields depressed near their lowest level since December. This, in turn, fails to assist the USD to attract any meaningful buyers and might act as a tailwind for the GBP/USD pair, though the Bank of England's (BoE) gloomy outlook should cap the upside.

In fact, the UK central bank lowered its benchmark interest rate by 25 basis points on Thursday and downgraded the growth forecast for 2025. Adding to this, BoE Governor Andrew Bailey told reporters that the central bank expects to make further rate cuts this year. This might continue to undermine the British Pound (GBP) and suggests that the path of least resistance for the GBP/USD pair remains to the downside.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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