As the US Dollar strengthens on the back of optimistic labor data, the GBP/USD pair continues its downward trend for the third consecutive day, hovering around 1.3060 during the Asian session on Tuesday. The improved labor data has raised doubts about the possibility of an aggressive interest rate cut by the Federal Reserve (Fed) at its September meeting.
The CME FedWatch Tool indicates that while markets are expecting a 25 basis point rate cut, the likelihood of a 50 bps rate cut has slightly decreased to 29.0%. Federal Reserve Bank of Chicago President Austan Goolsbee’s recent remarks align with the market sentiment, suggesting an imminent policy rate adjustment by the US central bank.
Meanwhile, investors are eagerly awaiting the UK labor market report for the quarter ending in July, set to be released on Tuesday. This report could significantly impact market expectations regarding the Bank of England’s interest rate decisions for the rest of the year.
Forecasts suggest a potential decrease in the ILO Unemployment Rate to 4.1% from 4.2%, with Average Earnings expected to slow to 4.1% from the previous 4.5%. A decline in wage growth may fuel expectations for additional interest rate cuts by the Bank of England, signaling a possible easing of inflationary pressures in the services sector.
Analysis and Breakdown:
The GBP/USD pair is facing downward pressure due to the strengthened US Dollar, driven by positive labor data that has cast uncertainty on the Fed’s rate cut plans. The likelihood of a 50 bps rate cut has decreased, reflecting a more cautious approach by the market and Fed officials.
On the other hand, the upcoming UK labor market report could influence the Bank of England’s interest rate decisions, with expectations of lower unemployment and slower wage growth potentially leading to additional rate cuts. Overall, these developments highlight the interconnectedness of global economic indicators and their impact on currency pairs like GBP/USD.