GBP/USD gains traction above 1.3050 ahead of delayed US NFP release

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The GBP/USD pair trades with mild gains near 1.3060, snapping the four-day losing streak, during the early European session on Thursday. Markets might turn cautious later in the day ahead of the release of the delayed US September Nonfarm Payrolls (NFP) report.

GBP/USD posts modest gains around 1.3060 in Thursday’s early European session.
Markets consider a BoE December rate cut to be likely, with some pricing in a high probability.
Traders await the upcoming NFP report to provide clues about the potential for an interest-rate cut next month.

The UK Consumer Price Index (CPI) inflation fell to 3.6% YoY in October from 3.8% in September, the National Statistics showed on Wednesday. This figure came in line with the market consensus. The inflation data cemented expectations that the Bank of England (BoE) could cut interest rates in December, which could undermine the Cable in the near term. The upcoming government budget on November 26 is also expected to influence the BoE's next move.

The attention will shift to the US labor market data, which is due later on Thursday. The data release was delayed by a 43-day government shutdown that ended last week. The shutdown has complicated the Federal Reserve’s (Fed) assessment of the labor market.

Economists expect the report to show that the US added about 50,000 new jobs in September. The Average Hourly Earnings is projected to increase by 0.3% MoM in September, while the Unemployment Rate is estimated to stay at 4.3%. If the report shows a weaker-than-expected outcome, this could drag the USD lower and create a tailwind for the major pair.

The Federal Open Market Committee (FOMC) released its minutes from the October meeting on Wednesday, indicating "strongly differing views" about the appropriate policy decision for the December meeting. The majority of officials supported further rate cuts in general, many participants indicated it might be appropriate to keep interest rates steady for the remainder of the year.

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.

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