Pound Sterling ticks up against US Dollar in countdown to US NFP

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The Pound Sterling trades marginally higher to near 1.3365 against the US Dollar (USD) during the Asian trading session on Friday. The GBP/USD pair edges up as the US Dollar ticks down ahead of the United States (US) Nonfarm Payrolls (NFP) data for February, which will be published at 13:30 GMT.

The Pound Sterling edges up against the US Dollar to near 1.3365 ahead of the US NFP data release.
Dovish Fed bets trimmed after upbeat US ADP Employment data for February.
Suring energy prices are expected to discourage BoE officials from reducing interest rates on March 19.

As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.1% down around 99.00.

The impact of the US official employment data is expected to be significant on the Federal Reserve’s (Fed) monetary policy outlook as traders trimmed dovish bets for the July policy meeting after the release of the upbeat ADP Employment data for February on Wednesday.

The CME FedWatch tool shows that the odds of the Fed holding interest rates steady in the July policy meeting have increased to 47.4% from 33.4% seen a week before.

The US NFP report is expected to show that employers hired 59K fresh workers, significantly lower than 130K in January. The Unemployment Rate is seen steady at 4.3%.

Broadly, the risk-off market sentiment amid the war in the Middle East involving the US, Israel, and Iran continues to support the US Dollar.

On the United Kingdom (UK) front, market experts start doubting that the Bank of England (BoE) will cut interest rates in the policy meeting on March 19, as the Middle East conflict has boosted energy prices, a scenario that will likely prompt inflationary pressures further. Given that the UK inflation has been well above the 2% target, a further increase in price pressures would discourage BoE officials from easing monetary conditions.

“Unless tensions in the Middle East swiftly de-escalate, we doubt the Bank will cut rates on March 19 as we previously thought," analysts at Capital Economics said, Reuters reported.

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.