Pound Sterling rises as Dollar weakens
Pound Sterling extends upside against US Dollar amid US labor market concerns
The Pound Sterling (GBP) extended Tuesday’s recovery move to near 1.3370 against the US Dollar (USD) during the European trading session on Wednesday. The GBP/USD pair recovered strongly as the US Dollar extended its correction, following comments from Federal Open Market Committee (FOMC) members, including Federal Reserve (Fed) Chair Jerome Powell, regarding labor market concerns.
During press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, traded 0.25% lower near 98.80.
On Tuesday, Powell stated that the US labor market remained mired in its “low-hiring, low-firing doldrums” through September, despite the economy remaining somewhat on a “firmer trajectory than expected.” He added, “Economic activity data are surprising to the upside, creating some tension with the labor market data.”
Separately, Fed Governor Michelle Bowman and Boston Fed President Susan Collins also warned of labor market risks and explicitly supported the need for more interest rate cuts. Collins noted, “The job market risks suggest more easing is needed, so perhaps another 25 bps of easing might be appropriate.”
According to the CME FedWatch tool, traders see a 94.6% chance that the Fed will reduce interest rates by 50 basis points (bps) to 3.50%-3.75% in the remaining year.
Ongoing trade tensions between the United States and China have also been a drag on the US Dollar. China has begun charging additional port fees on ocean shipping firms that move everything from holiday toys to crude oil, which market participants saw as a response to fees charged by the United States.
The Pound Sterling traded mixed against most of its currency peers on Wednesday. Despite its gains versus the US Dollar, the British Pound is expected to face selling pressure as traders increased bets on more interest rate cuts by the Bank of England (BoE) this year.
According to Reuters, money markets are pricing in a 46-basis-point reduction by the BoE in the remaining two monetary policy meetings of the year.
BoE dovish bets escalated after UK labor market data for the three months ending in August showed the ILO Unemployment Rate rising to 4.8% and Average Earnings Excluding Bonus cooling to 4.7% year-on-year, the lowest since May 2022.
BoE Governor Andrew Bailey acknowledged the slowing job market and cooling inflationary pressures but refrained from commenting on the monetary policy outlook.
In contrast, the International Monetary Fund (IMF) urged caution, warning that UK inflation is likely to remain the highest among G7 economies this year and in 2026. The IMF projects inflation to average 3.4% in 2025 and 2.5% in 2026.
The GBP/USD pair advanced strongly after attracting bids near the 200-day Exponential Moving Average (EMA) around 1.3270.
However, the outlook for the Cable remains uncertain amid a Head and Shoulders chart formation on the daily timeframe. The 14-day Relative Strength Index (RSI) found support near 40.00. A fresh bearish momentum could emerge if the RSI falls below that level.
Looking lower, the August 1 low of 1.3140 will act as a key support zone. On the upside, the psychological level of 1.3500 is the next major barrier.