July 18, 2024
New Delhi, India
GBP/USD
The Pound Sterling (GBP) slipped below the 1.3000 mark against the US Dollar (USD) during Thursday’s London session, influenced by the latest UK labor market data and shifting expectations around Federal Reserve (Fed) rate cuts. Here’s a detailed analysis of the factors impacting the GBP/USD pair.
UK Labor Market Data
- Average Earnings Deceleration: The UK’s Average Earnings, both including and excluding bonuses, rose by 5.7% in the three months ending in May, down from 5.9% and 6%, respectively, in the previous month. This slowdown in wage growth, while expected, remains higher than desired for price stability and continues to challenge the Bank of England’s (BoE) interest rate decisions.
- Employment Changes: The Office for National Statistics (ONS) reported a net addition of 19,000 job-seekers in the three months ending in May, contrasting with a significant drawdown of 140,000 in the preceding period. The ILO Unemployment Rate held steady at 4.4%, matching estimates and the previous release.
BoE Interest Rate Outlook
The deceleration in wage growth and persistent core Consumer Price Index (CPI) inflation, which remained steady at 3.5% in June, have dampened expectations for the BoE to reduce interest rates in its upcoming meetings. The core CPI’s stickiness suggests ongoing inflationary pressures, particularly in the service sector.
Also Read: Gold Prices Nears Record Highs on Prospects of Fed Rate Cuts
US Dollar Dynamics
- Fed Rate Cut Expectations: Rising expectations for the Fed to start cutting interest rates from the September meeting have exerted downward pressure on the US Dollar. The US Dollar Index (DXY), which measures the USD against six major currencies, was near a four-month low at around 103.70.
- Inflation Insights: The latest CPI report from June indicated a resumption of the disinflation process, with annual headline and core CPI decelerating faster than anticipated. This development has bolstered confidence among Fed officials that inflationary pressures are easing towards the 2% target.
Market Reactions
- GBP/USD Performance: The Pound Sterling edged lower, nearing the psychological support level of 1.3000 against the US Dollar during the European session. Despite the dip, the overall appeal of the GBP/USD pair remains influenced by broader market expectations of Fed rate cuts.
- Fed Officials’ Commentary: Richmond Fed Bank President Thomas Barkin highlighted the broadening disinflation trends, expressing optimism about the decreasing inflation pressures. This sentiment adds to the speculation of potential rate cuts, impacting the USD’s value.
Bottom Line:
The GBP/USD pair’s decline below 1.3000 is attributed to the UK’s slower wage growth and the rising expectations of Fed rate cuts. The ongoing analysis of economic indicators and central bank policies will continue to shape the currency pair’s trajectory in the coming months.
Currency Market Update July 18, 2024
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