The British Pound (GBP) stabilized against the US Dollar (USD) on Friday, setting the stage for a weekly gain exceeding 1%. This shift comes as market sentiments lean toward the view that the Federal Reserve (Fed) is unlikely to raise interest rates during its September meeting. Currently, the GBP/USD pair is trading around 1.3350, showing little change from the previous day.
The recent performance of the US labor market has raised eyebrows, particularly following June’s Nonfarm Payrolls report, which not only missed anticipations but also saw downward revisions for earlier months. Specifically, a net loss of 74,000 jobs in April and May has led traders to adjust their expectations, now anticipating a rate hike in October rather than September.
The new Fed Chair, Kevin Warsh, although not providing clear forward guidance, reiterated the Fed’s commitment to battling inflation. As the next Federal Open Market Committee (FOMC) minutes are set to be released, they will be closely analyzed by traders along with the upcoming US inflation report expected on July 14. Additionally, the ISM Services PMI report will yield insights into the current state of inflation and employment, with Initial Jobless Claims anticipated to increase slightly from 215,000 to 219,000 for the week ending July 4.
In the UK, ongoing political uncertainty has hindered the momentum of Sterling, bringing it to levels reminiscent of mid-June, particularly below the significant 200-day Simple Moving Average (SMA) at 1.3399. Although Manchester Mayor Andy Burnham has reaffirmed his support for existing fiscal policies, investor caution remains prevalent. Reports suggest Burnham may consider introducing income tax breaks targeted at helping younger individuals enter the property market.
Economic indicators further highlight the challenges facing the UK, as evidenced by the decline in the S&P Global Services PMI, which dropped from 49.3 to 48.8 in June due to a continued contraction in New Orders. This was the fourth consecutive month of decline, with businesses citing ongoing cost pressures and restrictions on consumer spending as contributory factors. Looking ahead, the UK will witness multiple events in the upcoming week, including speeches from Bank of England officials and the release of the Financial Stability Report.
Expectations around interest rates from both the Fed and the Bank of England (BoE) also paint a complex picture. Money markets have lowered the odds of the Fed raising rates by 2026 to 46%, according to Prime Terminal data. Conversely, futures indicate a 70% probability that the BoE will increase rates by the end of the same year.
From a technical standpoint, GBP/USD currently trades at 1.3354, remaining below a critical cluster of simple moving averages converging near 1.3409, which suggests that the pair is likely to face resistance in the near term. The setup hints at a corrective bounce rather than a robust recovery, with the Relative Strength Index (14) hovering around 53, indicating slight improvements in momentum, yet insufficient to influence the prevailing downward trends. Resistance levels are noted at the SMA zone around 1.3409 and the descending trend line near 1.3520. On the downside, key support aligns with a longer-term trend line near 1.3159, and breaking below this could prompt a more significant pullback.
The dynamics surrounding the Pound Sterling are influenced by a range of factors, including monetary policy determined by the BoE, economic data releases, and the Trade Balance, which measures the difference between exports and imports. These factors significantly dictate the currency’s value, as a thriving economy can attract investment and encourage interest rate hikes, which typically bolster the Pound. Conversely, weak economic indicators can lead to depreciation.
