Noor Trends News, Technical Analysis, Educational Tools and Recommendations
The Pound Sterling managed to recoup some losses against the US Dollar on Friday, buoyed by a significantly weaker-than-expected US Nonfarm Payrolls (NFP) report. The data revealed a sharp slowdown in job growth, casting doubt on the resilience of the US economy and prompting a broad-based decline in the dollar.
Despite this late-week rally, the GBP/USD pair ultimately closed the week in negative territory. The Pound had been under pressure earlier in the week following the Bank of England’s decision to cut interest rates by 25 basis points, a move that aligned with market expectations.
The underwhelming NFP figures have intensified speculation about a potential Federal Reserve interest rate cut in the near future. A softer US economic outlook could exert downward pressure on the dollar, providing potential support for the Pound in the coming weeks.
Investors will now turn their attention to upcoming economic indicators, including the US ISM Services PMI and UK BRC Retail Sales. These releases will offer further insights into the health of both economies and could influence currency pair dynamics.
BoE Rate Decision, Impact
The Bank of England (BoE) surprised markets on Thursday by lowering its key interest rate for the first time in over four years. The decision to cut the rate to 5% was a close call, with a 5-4 vote among policymakers. Governor Andrew Bailey emphasized a cautious approach moving forward.
The rate had previously held steady at a 16-year high of 5.25% since August 2023. Despite market expectations of a rate cut, the BoE’s lack of clear guidance leading up to the decision created uncertainty.
Following the announcement, UK government bond yields declined as investors adjusted to the new interest rate outlook. The 10-year gilt yield dropped by over 9 basis points, while the 2-year yield fell more sharply by over 10 basis points.
Known for providing less forward guidance compared to other central banks, the BoE’s communication was particularly limited during the recent general election period. The bank also released its quarterly Monetary Policy Report on Thursday, outlining economic projections. The next policy meeting is scheduled for September 19.
Earlier on Friday, The British pound stabilized on Friday following a sharp decline the previous day, triggered by the Bank of England’s (BoE) decision to cut interest rates for the first time in over four years. Sterling edged up slightly to $1.2739, recovering from a one-month low of $1.2708 earlier in the session. This comes as the currency is set to endure its worst weekly performance in nearly four months, with a 1% loss.
The BoE’s unexpected rate cut to 5%, decided by a narrow margin, underscored the persistent inflation risks plaguing the UK economy. However, Governor Andrew Bailey emphasized that the central bank is not committing to a series of rapid rate reductions, citing recent economic strength and ongoing inflation concerns.
Despite this, the pound continued to weaken against the euro, reaching an eight-week low of 84.995 pence. Analysts at ING anticipate further interest rate cuts in the UK compared to the eurozone, predicting a gradual rise in the euro against the pound. They expect the euro/sterling exchange rate to surpass 85 later this year.
Investors are fully anticipating another interest rate cut from the BoE before the year’s end. Meanwhile, the dollar softened against other major currencies ahead of the release of crucial U.S. jobs data. The data is expected to show a slowdown in job growth but still indicate a healthy labor market.
A recent slump in U.S. manufacturing, as revealed by economic data, sparked concerns about a potential downturn, leading to a sell-off in stock markets and a surge in demand for safe-haven assets like currencies and bonds. Federal Reserve Chair Jerome Powell hinted at a possible rate cut at the next policy meeting, but the disappointing manufacturing data has increased expectations for a larger 50 basis point reduction.
