GBPUSD Pair Rides on Anticipated Federal Reserve Policy Shift
The GBPUSD pair has been on an upward trajectory, marking its fourth day of gains and hovering around the 1.2550 mark in Asian trading sessions on Monday. This surge in value for the Sterling against the Dollar is largely due to market recalibration of expectations surrounding the Federal Reserve interest rate cuts slated for 2024. These expectations have been adjusted following the release of the U.S jobs data, which came in below forecasts.
Friday’s non-farm payrolls (NFP) report revealed that the US economy added 175,000 jobs in April, a figure that falls short of the anticipated 243,000 and indicates a slowdown from March’s robust addition of 315,000 jobs. Furthermore, Average hourly earnings year-over-year rose by 3.9% in April, slightly below the expected 4.0% and the previous 4.1%. The month-on-month growth also disappointed at 0.2%, missing the forecasted 0.3%.
With this backdrop, market participants are now pricing in the possibility of the Fed initiating interest rate cuts as early as September, a revision from the previously projected November timeline. The CME FedWatch Tool underscores this shift, indicating a 48.8% chance of a 25 basis points reduction at the September meeting, up from 43.8% just a week earlier.
On the other side of the Atlantic, expectations for the Bank of England’s policy moves are also evolving. The BoE is expected to hold interest rates steady at 5.25% in their upcoming Thursday meeting. However, investor sentiment has pushed back predictions for interest rate cuts by the BoE to September, amid concerns over persistent wage growth in the UK that could continue to stoke core inflation— the central bank’s preferred gauge.
In a recent update, BoE Governor Andrew Bailey expressed a positive outlook on UK inflation trends, noting that inflation had fallen to 3.2% in March, reaching its lowest point since September 2021 and seemingly aligning with the central bank’s target of 2%.
