Pound Sterling holds onto gains against US Dollar ahead of US NFP report
- The Pound Sterling demonstrates strength against the US Dollar around 1.2900 ahead of the US NFP data for February.
- US President Trump exempted tariffs on the import of goods compliant with the USMCA act till April 2.
- BoE’s Catherine Mann believes that a gradual policy-easing approach is unfavorable amid heightened geopolitical uncertainty.
The Pound Sterling (GBP) clings to gains near 1.2900 against the US Dollar (USD) in the European trading session on Friday. The GBP/USD pair exhibits strength ahead of the United States (US) Nonfarm Payrolls (NFP) report for February, which will be published at 13:30 GMT.
Investors will pay close attention to the US official employment report as it will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook. Economists expect the US economy to have added 160K fresh workers, higher than 143K recorded in January. The Unemployment Rate is seen steady at 4%.
Market participants will also focus on the US Average Hourly Earnings data, a key measure of wage growth, which is anticipated to have risen steadily by 4.1% year-over-year. On month, the wage growth measure is estimated to have grown by 0.3%, slower than the 0.5% growth seen in January.
Signs of strong labor demand and wage growth momentum would boost expectations that the Fed will keep interest rates in the current range of 4.25%-4.50% for longer. On the contrary, soft numbers would diminish them. According to the CME FedWatch tool, the central bank is almost certain to keep borrowing rates unchanged in the March meeting, but there is a 50% chance that it could cut them in May.
On Thursday, Atlanta Fed Bank President Raphael Bostic said at an event hosted by the Birmingham Business Journal that interest rates should stay in their current range before late spring or summer amid uncertainty over the economy due to US President Donald Trump’s economic agenda. Bostic warned that Trump’s tariffs could fuel inflationary pressures.
Daily digest market movers: Pound Sterling remains firm despite BoE Mann’s dovish guidance
- The Pound Sterling trades higher against its major peers on Friday while Bank of England (BoE) Monetary Policy Committee (MPC) member Catherine Mann argued against the adaptation of a “gradual and cautious” approach to monetary policy easing in her speech at a Reserve Bank of New Zealand (RBNZ) research conference on Thursday.
- Catherine Mann rebutted the need for a moderate monetary expansion approach, as favored by a majority of BoE officials in the February monetary policy meeting and testimony before Parliament’s treasury committee on Wednesday, amid significant volatility in global markets. Mann said that the founding premise for a gradualist approach to monetary policy is “no longer valid” due to “substantial volatility” coming from financial markets, especially from “cross-border spillovers”.
- On Wednesday, a slew of BoE officials, including Governor Andrew Bailey, endorsed a gradual path for “removing monetary policy restrictiveness” as the inflation persistence is less likely to fade “on its own accord”.
- On the geopolitical front, US President Trump has reprieved a significant number of products from tariffs imported from Canada and Mexico that come under the umbrella of the United States-Mexico-Canada Agreement (USMCA) till April 2, the same day when he is expected to impose reciprocal tariffs. On Wednesday, Trump relaxed levies on automobiles coming from Canada and Mexico after discussing with the big three US carmakers.
Technical Analysis: Pound Sterling sees more upside above 61.8% Fibo retracement at 1.2930
The Pound Sterling gathers strength to break above the 61.8% Fibonacci retracement plotted from the late September high to mid-January low around 1.2930 on Friday. The long-term outlook of the GBP/USD pair has turned bullish as it holds above the 200-day Exponential Moving Average (EMA), which is around 1.2688.
The 14-day Relative Strength Index (RSI) climbs above 60.00, suggesting a strong bullish momentum.
Looking down, the 50% Fibo retracement at 1.2767 and the 38.2% Fibo retracement at 1.2608 will act as key support zones for the pair. On the upside, the psychological 1.3000 level will act as a key resistance zone.
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, 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).
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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