GBP/USD tepid as UK election results poised to match early polls, US NFP looms ahead
- UK election results show UK Labour Party poised for huge sweep to majority win.
- Brits set to elect their first non-Conservative Prime Minister in 14 years.
- US NFP labor data dump on Friday to cap off trading week.
GBP/USD traded in a tight range on Thursday as Cable traders await final results from the UK’s Parliamentary Election, and markets gear up for a fresh round of US Nonfarm Payrolls (NFP) slated for Friday. US markets were dark on Thursday, crimping overall market flows during the American trading window, but are slated to return on Friday.
Forex Today: The US Payrolls takes centre stage
The UK’s Parliamentary Election is wrapping up, and initial tallies are confirming what was largely projected by entry and exit polls: the UK is likely to elect the Labour Party’s Keir Starmer as the first non-Conservative UK Prime Minister in 14 years.
UK general election 2024: Exit poll points to Labour victory
Median market forecasts continue to expect an overall softening in US data. Investors, hungry for rate cuts from the Federal Reserve (Fed), are leaning into hopes for a slight economic downturn in the US to spark rate moves from the US central bank.
US NFP figures are expected to tick down to 190K in June, down from the previous month’s 272K. Markets will also be on the lookout for steep revisions to previous releases, while June’s US Unemployment rate is expected to hold steady at 4.0% MoM.
US Average Hourly Earnings are expected to cool slightly in June, forecast to ease to 3.9% YoY compared to the previous annualized period’s 4.1%.
Economic Indicator
Nonfarm Payrolls
The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.
Read more.Next release: Fri Jul 05, 2024 12:30
Frequency: Monthly
Consensus: 190K
Previous: 272K
Source: US Bureau of Labor Statistics
America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.
GBP/USD technical outlook
GBP/USD is extending into a thin but determined recovery on Thursday, stretching into a third day of gains after arresting near-term declines just north of the 200-day Exponential Moving Average (EMA) at 1.2610.
Cable has drifted into the low end after seeing a technical rejection from a supply zone priced in above 1.2800. Still, unmotivated bears have failed to spark a meaningful decline into the last major swing low into the 1.2300 handle.
GBP/USD hourly chart
GBP/USD daily chart
Pound Sterling FAQs
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, aka ‘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).
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.
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.
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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