The Pound Sterling (GBP) faced selling pressure near the 1.2740 level during Tuesday’s London session, marking a retreat against the US Dollar (USD). This downward movement in the GBP/USD pair was primarily attributed to disappointing employment data from the United Kingdom (UK) for the three months through April, coupled with a resilient US Dollar amidst expectations of delayed interest-rate cuts by the Federal Reserve (Fed).
According to the UK Office for National Statistics (ONS), the labor market witnessed its fourth consecutive decline, with employment dropping by 140,000 workers in the January-April period. Although this decline was less severe than the previous quarter’s 177,000 decrease, the ILO Unemployment Rate rose to 4.4%, exceeding expectations and reaching its highest level in over two years. These figures indicate challenges faced by firms in adapting to the Bank of England‘s (BoE) policy of higher interest rates.
Despite the subdued employment figures, wage growth remained steady during the February-April period. Average Earnings Excluding Bonuses and Average Earnings Including Bonuses both recorded growth rates in line with or higher than estimates, signaling potential resistance to the BoE’s inclination towards interest rate cuts.
In the broader market context, the Pound Sterling continued to face selling pressure, with the GBP/USD pair struggling near the 1.2740 level. Meanwhile, the US Dollar maintained its strength as investors exercised caution ahead of key economic data releases, including the US Consumer Price Index (CPI) for May and the Fed’s interest rate decision scheduled for Wednesday.
Market analysts anticipate a slower pace of monthly headline inflation in May compared to April, with annual figures expected to show steady growth. However, any deviation from these expectations could influence Fed policymakers’ stance on interest rates, with steady or higher-than-expected inflation potentially delaying rate cuts.
All eyes are on the upcoming Fed interest rate decision, with policymakers likely to maintain rates unchanged until sufficient evidence of sustained inflation emerges. Market speculation suggests only one rate cut for the year, possibly in the November or December meeting, with diminished expectations for rate cuts in September.
Investors await insights from Fed Chair Jerome Powell’s press conference and the dot plot to gauge the interest rate outlook, with any shifts in expectations likely to impact currency markets significantly.
Related Topics:
