London, March 8, 2024 – In the European session on Friday, the Pound Sterling (GBP) displayed a sideways trend as investors exercised caution ahead of the release of the United States Nonfarm Payrolls (NFP) data for February, scheduled for publication at 13:30 GMT. The GBP/USD pair remains buoyant, driven by prevailing expectations in the market that the Federal Reserve (Fed) may cut interest rates before the Bank of England (BoE), potentially narrowing the policy divergence.
Market consensus positions a Fed rate cut in the upcoming June meeting, while investors anticipate the BoE to follow suit in August. The UK’s inflation rate continues to outpace that of other developed nations in the Group of Seven (G-7), attributed to persistent services inflation bolstered by robust wage growth.
The forthcoming UK Average Earnings data for the three months ending in January is poised to offer fresh insights into the inflation outlook. A continuation of robust wage growth would likely mitigate expectations of a rate cut. BoE policymakers have cautioned that wage growth remains nearly double the necessary threshold for inflation to align with the 2% target.
In a reflection of the week’s trading, the Pound Sterling versus US Dollar trade has stabilized, having previously surged to the resistance level of 1.2800. Investors are adopting a wait-and-see approach ahead of the critical United States Employment data for February.
Economists project an addition of 200K jobs by US employers, a decrease from the robust 353K hiring observed in January. The Unemployment Rate is expected to hold steady at 3.7%, with additional focus on the Average Hourly Earnings data for insights into the inflationary landscape.
Market participants should brace for potential volatility, as a significant shift in US employment figures could impact expectations regarding the Federal Reserve’s stance in the June policy meeting. Despite the firmness in expectations for a rate cut in June, Fed Chair Jerome Powell’s recent congressional testimony indicated a less hawkish tone.
The GBP/USD pair is on track for weekly gains, largely attributed to the weakened appeal of the US Dollar. Looking ahead, the Pound Sterling’s trajectory will be influenced by the UK’s labor market data for the three months ending in January, potentially providing indications of the Bank of England’s stance on interest rate reduction. Presently, market sentiments lean towards a rate cut in the August meeting.
BoE policymakers have refrained from specifying a timeline for easing borrowing costs, emphasizing that cuts would only be considered once there is confidence in the sustained return of inflation to the 2% target.
Meanwhile, UK house prices have registered a fifth consecutive monthly increase, propelled by a recent decline in mortgage rates and expectations of imminent rate cuts. The mortgage lender Halifax reported a 0.4% month-on-month rise in house prices for February.
