Pound Sterling refreshes weekly high against US Dollar

The Pound Sterling jumps to near 1.3490 against the US Dollar as the Greenback weakens after the government shutdown.
BoE’s Breeden warns of economic risks and advocates interest rate cuts.
US private employers are expected to have added 50K fresh workers in September.

Sagar Dua FXStreet

The Pound Sterling (GBP) posts a fresh weekly high near 1.3490 against the US Dollar (USD) during the European trading session on Wednesday. The GBP/USD pair edges higher as the US Dollar underperforms its peers, with the United States (US) government entering a shutdown.

At the time of press, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.25% lower on the day to near 97.50.

Washington entered the dark after government funding expired at midnight on Tuesday as Republicans failed to persuade Democrats to support the short-term funding bill in the House and Senate, which was expected to extend the shutdown deadline to November 21.

The impact of the federal government closure will be significant on market expectations for the Federal Reserve’s (Fed) monetary policy outlook as statistical agencies warned of a halt in key economic releases, including the official employment report for September, which was scheduled for Friday.

In response, US President Donald Trump has warned of irreversible cuts in programs favoured by Democrats for letting the government enter a shutdown. “They’re taking a risk by having a shutdown. We can do things during the shutdown that are irreversible, that are bad for them,” Trump said, Time Magazine reported.

Daily digest market movers: BoE's Mann, Lombardelli warn of persistent inflation risks

The Pound Sterling exhibits a mixed performance against its major peers on Wednesday. The British currency is expected to struggle to find a direction as Bank of England (BoE) officials are divided over the United Kingdom (UK) inflation outlook.
On Tuesday, BoE Deputy Governor Clare Lombardelli warned that officials should not consider inflation shocks as temporary. Lombardelli stated that an increase in inflation could be from a one-off event, but its impact could prove to be more persistent, Reuters reported. It is worth noting that Lombardelli was one of the Monetary Policy Committee (MPC) members who voted to hold interest rates steady in both policy meetings in August and September. In August, the BoE reduced key borrowing rates by 25 basis points (bps) to 4%.
Separately, BoE member Catherine Mann also stated that price pressures could prove to be persistent, but she didn’t rule out the possibility of further interest rate cuts.
On the contrary, BoE Deputy Governor Sarah Breeden argued in favour of reducing interest rates, citing that higher interest rates for longer could harm economic prospects and push inflationary pressures below the central bank’s target of 2%. “Risks in holding policy too tight for too long, could pull inflation below target,” Breeden said.
In Wednesday’s session, the GBP/USD pair will be influenced by the ADP Employment Change data for September, which will be published at 12:15 GMT. The impact of the ADP report will be significant on the Fed’s monetary policy outlook amid uncertainty over the release of the US official labor market data later in the week. Economists expect the US private sector to have added 50K new workers, marginally lower than 54K in August.

Technical Analysis: Pound Sterling extends recoverhy to near 20-day EMA

The Pound Sterling extends its winning streak against the US Dollar for the fourth trading day on Wednesday. The GBP/USD pair recovers to near the 20-day Exponential Moving Average (EMA), which trades around 1.3480.

The 14-day Relative Strength Index (RSI) rebounds from 40.00. The pair is likely to remain sideways as the RSI stays inside the 40.00-60.00 range.

Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the September 17 high of 1.3726 will act as a key barrier.

Economic Indicator

ADP Employment Change

The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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