August 13, 2024
New Delhi, India
GBP Analysis
The Pound Sterling (GBP) surged during Tuesday’s London session, reacting positively to stronger-than-expected UK employment data. This has shifted market sentiment, reducing expectations of imminent interest-rate cuts by the Bank of England (BoE). As investors anticipate key inflation data from both the UK and the US on Wednesday, the GBP continues to show strength against major currencies.
UK Employment Data Surprises Markets: The UK Office for National Statistics (ONS) reported that the ILO Unemployment Rate unexpectedly fell to 4.2% for the three months ending in June, defying economists’ predictions of a rise to 4.5%. This unexpected improvement in the job market has provided a significant boost to the Pound, as it suggests that the labor market remains resilient.
Additionally, Average Earnings Excluding Bonuses, a crucial measure of wage growth that influences inflation, increased by 5.4%, surpassing the expected 4.6%. Although this figure is slightly below the previous reading of 5.7%, it still indicates robust wage growth, further dampening expectations of a near-term rate cut by the BoE.
54th GST Council Meeting Scheduled for September 9 in New Delhi: Key Issues to Watch
BoE Commentary and Market Reactions: On Monday, Catherine Mann, a member of the BoE’s Monetary Policy Committee (MPC), cautioned that inflation pressures could persist, particularly in goods and services prices. Mann’s comments, combined with the strong employment data, have made it less likely that the BoE will move towards rate cuts soon.
Following the data release, the Pound Sterling has strengthened, particularly against the US Dollar (USD), pushing the GBP/USD pair above the 1.2800 level to a fresh weekly high. This move reflects the market’s reassessment of the BoE’s future monetary policy trajectory.
Upcoming UK and US Inflation Data: Investors are now turning their attention to the upcoming UK Consumer Price Index (CPI) data, scheduled for release on Wednesday. The report is expected to show a slight deceleration in core inflation, with forecasts predicting a drop to 3.4% from 3.5% in the previous month. This data will be crucial in shaping expectations for the BoE’s next steps.
Similarly, the US Dollar is in a holding pattern ahead of the US CPI release. The US CPI report is anticipated to show modest increases in both headline and core inflation on a monthly basis, with annual figures expected to slightly decelerate. These inflation metrics will be pivotal in determining whether the Federal Reserve (Fed) will opt for a rate cut in its upcoming meetings.
Market Sentiment and US Recession Fears: The US Dollar Index (DXY), which tracks the Greenback against six major currencies, remains steady above 103.00 as investors weigh the implications of the upcoming inflation data. Although speculation about a significant Fed rate cut in September has decreased due to reduced recession fears, the market remains cautious.
UBS Global Research’s recession probability model shows that the likelihood of the US economy entering a recession has fallen to 53% in July, down from 60% a few months earlier. This easing of recession concerns has also contributed to the diminishing expectations of aggressive rate cuts by the Fed.
The Pound Sterling’s recent surge reflects market optimism driven by strong UK employment data, which has tempered expectations of immediate BoE rate cuts. As traders await crucial inflation data from the UK and the US, the GBPUSD pair remains in focus, with potential for further volatility depending on the upcoming economic releases.
Disclaimer:
CurrencyVeda provides this news article for informational purposes only. We do not offer investment advice or recommendations. Before making any investment decisions, please conduct thorough research, consult with financial experts, and carefully consider your financial situation, risk tolerance, and investment goals. Investing in the stock market carries risks, and it’s essential to make informed choices based on your individual circumstances. CurrencyVeda is not liable for any actions taken based on the information provided in this article.
