During the early European session on Wednesday, the GBP/USD pair remained relatively stable around 1.3110. However, the prevailing risk-off sentiment ahead of crucial US economic data releases could provide some support to the US Dollar (USD) and potentially push the pair lower. Key US data to watch include the JOLTS Job Openings report and the Fed Beige Book, both scheduled for later in the day.
On Tuesday, the Institute for Supply Management (ISM) reported a slight increase in the Manufacturing PMI to 47.2 in August, up from 46.8 in July, though it fell short of the market expectation of 47.5.
The CME FedWatch tool, which gauges market expectations for the Federal Reserve’s target rate, indicates a 61% probability of a 25 basis points (bps) rate cut at the Fed’s September meeting, with a 39% chance of a 50 bps cut. Fed Chair Jerome Powell signaled last month that a policy adjustment is imminent, suggesting a likely shift towards easing at the Fed’s September 17-18 meeting. The heightened expectations for a rate cut may weigh on the USD in the near term.
Attention will also turn to the August employment data, due on Friday. Deutsche Bank economists have noted that an increase in the unemployment rate could bolster expectations for a 50 bps rate cut by the Fed.
Meanwhile, the cautious mood continues to support the Greenback, even though the Bank of England (BoE) is expected to adopt a more modest interest rate cut cycle compared to other central banks this year. The GBP/USD pair is likely to be influenced more by USD price movements, given the lack of significant economic data releases from the UK.
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