Sterling Extends Winning Streak
Pound Sterling remains firm against Greenback amid US job market crackdown
Sagar Dua – FXStreet
The Pound Sterling (GBP) ticks up to near 1.3500 against the US Dollar (USD) during the European trading session on Thursday. The GBP/USD pair edges higher as the US Dollar (USD) remains on the backfoot, with the United States job market slowing down and the government entering a shutdown.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades vulnerable near the weekly low around 97.50.
On Wednesday, the US ADP Employment Change report showed that the private sector labor force witnessed a reduction of 32K employees in September. Economists had anticipated that 50K fresh workers would be added in that period. Additionally, the report revealed that 3K employees were laid off in August compared to the fresh addition of 54K workers initially reported.
Signs of a cooling United States job market have boosted expectations for more interest rate cuts by the Federal Reserve (Fed) in the remainder of the year. According to the CME FedWatch tool, traders have almost fully priced in that the Fed will cut interest rates by 25 basis points (bps) to the 3.75%-4.00% range in the policy meeting later this month.
The Pound Sterling demonstrates a mixed performance against its major peers on Thursday. However, the outlook of the British currency has become uncertain as Bank of England (BoE) officials have started expressing concerns over cooling United Kingdom (UK) economic prospects.
On Tuesday, BoE Deputy Governor Sarah Breeden warned that tight monetary policy conditions could push inflation below their 2% target, which has been a major reason forcing officials to maintain a “gradual and careful” monetary easing outlook. “Risks in holding policy too tight for too long, could pull inflation below target,” Breeden said.
The comments from Breeden signaling a turnaround in inflationary pressures could boost expectations of more interest rate cuts by the BoE in the near term. At the August policy meeting, the BoE stated that price pressures would peak around 4% in September. Meanwhile, one-year forward expected Consumer Price Index (CPI) inflation by UK firms has come in slightly higher to 3.5% in the quarter to September, according to the latest BoE Decision Maker Panel (DMP) quarterly survey.
In the United States, investors brace for further slowdown in the job market as the White House has warned that they could announce mass lay-offs in the wake of the government shutdown. "Unfortunately, because the Democrats shut down the government, the President of the United States has directed his Cabinet and the Office of Management and Budget to work with agencies across the board to identify where cuts can be made, and we believe that layoffs are imminent," White House press secretary Karoline Leavitt said, Reuters reported.
In Thursday’s session, the US Department of Labour is unlikely to post the Initial Jobless Claims data for the week ending September 27, as the government remains shut down at the time of writing.
The Pound Sterling extends its winning streak against the US Dollar for the fifth trading day on Thursday. The GBP/USD pair strives to extend its upside above the 20-day Exponential Moving Average (EMA), which trades around 1.3485. The return of the Cable above the 20-day EMA will shift the near-term trend to positive.
However, the pair would remain sideways if the 14-day Relative Strength Index (RSI), currently at 50.61, stays in the 40.00-60.00 range.
Support levels: August 1 low at 1.3140 Resistance levels: September 17 high at 1.3726