GBP/USD strengthens above 1.3550, investors await NFP Benchmark Revision release

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The GBP/USD pair gathers strength to around 1.3560, the highest since August 15, during the early European session on Tuesday. The US Dollar (USD) weakens against the Pound Sterling (GBP) as weaker US jobs data shore up the case for deeper Federal Reserve (Fed) interest rate cuts.

GBP/USD gathers strength to near 1.3560 in Tuesday’s early European session.
The prospect of a jumbo Fed rate cut exerts some selling pressure on the US Dollar.
HSBC and Deutsche Bank analysts pushed back their forecasts for BoE rate cuts.

The US NFP report released on Friday showed a slowdown in hiring in August, while the Unemployment Rate rose to the highest level since 2021, confirming that labor market conditions in the world’s biggest economy are slumping.

Analysts expected a downward revision of as much as 800,000 jobs in the preliminary benchmark revisions covering the period from April 2024 to March 2025. The report could signal that the US central bank is behind the curve in efforts to achieve maximum employment. Traders are now pricing in nearly an 89.4% chance of a 25 basis point rate (bps) cut at the Fed's September meeting and a 10.6% probability of a jumbo 50 bps rate cut, according to the CMEFedWatch tool.

On the other hand, the expectation that the Bank of England (BoE) could delay the interest rate cuts might cap the upside for the major pair. HSBC expects the BoE to keep interest rates unchanged until April 2026, abandoning its earlier projection of a quarterly rate reduction starting in August 2024, according to Reuters. Meanwhile, Deutsche Bank delayed its forecast for the next rate cut to December from November.

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.