Pound-Dollar could extend its recovery if US payrolls disappoint, although cautious comments from Bailey may limit Sterling’s upside.
The Pound US Dollar (GBP/USD) exchange rate edged up on Thursday, after touching a 20-day low on Wednesday, although the recovery was limited.
At the time of writing, GBP/USD was trading at $1.3496, marginally up on the day.
DAILY RECAP:
The Pound (GBP) traded without a clear direction on Thursday as markets digested the UK’s final services PMI.
Although growth in the UK’s vital services sector reached a four-month high in August, the final reading was revised slightly lower than the preliminary estimate. The PMI rose from 52.1 to 52.5, rather than 52.8, which limited Sterling’s ability to make gains.
Meanwhile, GBP investors appeared unsettled by the recent surge in UK government borrowing costs, after gilt yields hit a 19-year high on Wednesday. Although bonds recovered on Thursday, yields remained sharply up on the week.
The US Dollar (USD) trended lower on Thursday as a risk-on mood swept markets, thereby dampening the appeal of the safe-haven ‘Greenback’.
Market sentiment improved as government bond yields around the world declined, easing concerns about how higher borrowing costs could choke off global economic growth.
In addition, a slight pullback in Federal Reserve interest rate hike expectations weighed on the Dollar directly and contributed to the improving appetite for risk. Market odds for a hike this month dipped from 63% on Wednesday to 60% on Thursday, with this slight drop putting modest pressure on USD.
Near-Term GBP/USD Forecast: Non-Farm Payrolls in Focus
Looking ahead to Friday, the Pound could come under scrutiny as investors assess a speech from Bank of England (BoE) Governor Andrew Bailey. Should Bailey continue to signal caution over the prospect of further interest rate hikes, Sterling may struggle to hold its ground.
On the other hand, a stronger emphasis on the upside risks to inflation could give the Pound a lift, particularly if Bailey points to a greater need for tighter monetary policy.
As for the US Dollar, USD will focus on the latest non-farm payrolls report. Weak jobs growth in August could dent the ‘Greenback’, particularly if it’s seen as dampening Federal Reserve interest rate hike bets.
Our currency coverage draws on live market data, official economic releases and published bank research.
