GBP/USD weakens below 1.3650 amid concerns over the UK debt position, US NFP data in focus

GBP/USD remains under selling pressure around 1.3625 in Thursday’s Asian session.
Rising market anxieties over the UK's debt position drag the Pound Sterling lower.
The US employment data for June will take center stage later on Thursday.

Lallalit Srijandorn FXStreet

The GBP/USD pair extends the decline to near 1.3625 during the Asian trading hours on Thursday. The Pound Sterling (GBP) faces some selling pressure amid a selloff in British government bonds. Traders will closely watch the US June employment data later on Thursday, including Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings.

The British bonds had their biggest selloff since October 2022, after the UK government decided to cut benefits and concerns arose over the finance minister's future. Rising market anxieties over the UK's debt position could exert some selling pressure on the Cable in the near term.

“It’s not just the British pound that is sharply lower, but the gilts are under a lot of pressure as well. I think it’s just a crisis of confidence in the Labour government,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.

On the USD’s front, the ADP National Employment Report showed on Wednesday that US private payrolls fell for the first time in more than two years in June, suggesting the Federal Reserve (Fed) might cut rates as soon as September. Traders will take more cues from the US employment data for June.

The US economy is expected to add 110,000 jobs in June, while the Unemployment Rate is expected to tick higher to 4.3% in the same period. If the reports show a weaker-than-expected outcome, this could weigh on the US Dollar (USD) and create a tailwind for the major pair.

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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