Sterling Surges ahead of UK elections, NFP data

The Pound Sterling has strengthened against the US dollar as the US labour market loses momentum. Investors expect the Fed to begin lowering interest rates in September, and economists expect that the Starmer-led Labour Party will gain an absolute majority. The GBP/USD jumps higher amid growing speculation that the Fed will start reducing interest rates from the September meeting.

The probability of rate cuts in September has increased to 72.6% from 66% recorded a week ago, as the labour market strength appears to have started fading and the economic health has become sluggish.

The US ADP Employment data showed that labour demand in the private sector unexpectedly declined in June, with the number of fresh payrolls coming in lower at 150K. The US service sector concluded the second quarter on a weak note, with the ISM Services Purchasing Managers’ Index (PMI) witnessing a contraction in June.

The major trigger for the US Dollar will be the US Nonfarm Payrolls (NFP) data for June, which will indicate the overall labour demand and the current status of wage growth through Average Hourly Earnings data. The UK general election could impact the Pound Sterling further, as market participants turn cautious as the UK public cast votes for parliamentary elections.

Market expectations show that UK Prime Minister Rishi Sunak-led-Conservative Party will suffer a defeat from the Keir Starmer-led-Labour Party, who is expected to win with an absolute majority and come into power for the first time since 2010. Growing speculation that the Labour Party will win at least 326 MPs seats in the House of Commons would be favorable for the near-term outlook of the Pound Sterling, allowing the British currency to outperform its peers where there is a high risk of political uncertainty in their respective regions.

The pound continues to rise against the US dollar on Thursday, benefiting from the weakness of the US currency and the anticipation of the results of the general elections in the United Kingdom, which coincide with awaiting the results of the early French elections.

The GBP/USD pair surged to 1.2760, versus 1.2740 Wednesday’s closing rate. The pair recorded its lowest level on the current trading day at 1.2733, compared to the highest level recorded at 1.2767.

The dollar index, which measures the performance of the US currency against a basket of major currencies, fell to 105.11 points after losing about 0.4% of its value compared to the last daily close, which recorded 105.40 points. The index rose to its highest level on Wednesday at 105.36 points, compared to the lowest level of 105.10.

Latest FOMC minutes, on Wednesday, indicated that members of the Federal Open Market Committee are convinced that the US Consumer Price Index readings last May provided evidence that there is progress in terms of lowering inflation while meeting the central bank’s goal.

A number of members also suggested that there are some new developments in the product market and labour market in the United States that shed light on what supports their view that inflationary pressures are declining.

The pair achieved the highest levels in two weeks amid a state of anticipation for the new government, the features of which are expected to appear after the end of this week, amid expectations that the opposition Labour Party will rise to power.