British Pound grinds higher above 1.3450 ahead of US ADP Employment release
- GBP/USD edges higher to around 1.3455 in Wednesday’s early European session.
- US JOLTS Job Openings came in weaker than expected, declining to 7.35 million in June.
- Markets expect one potential BoE rate hike later this year.
The GBP/USD pair posts modest gains near 1.3455 during the early European session on Wednesday, bolstered by softer US economic data and cooling US-Iran tensions. Traders brace for the US ADP Employment and ISM Services Purchasing Manager Index (PMI) reports, which are due on Wednesday. Markets might turn cautious later this week ahead of the US July jobs data.
The US JOLTS Job Openings declined to 7.359 million in June, compared to the 7.537 million openings reported in May, the US Bureau of Labor Statistics showed on Tuesday. This figure came in below the market expectation of 7.4 million.
Traders will take more cues from the ADP Employment data ahead of the US employment data on Friday. These reports could offer some hints about the health of the labour market and the US interest rate path. Economists expect Nonfarm Payrolls (NFP) to increase by 80,000 in July, while the Unemployment Rate is projected to hold steady at 4.2% during the same period. In case of stronger-than-expected outcomes, this could lift the Greenback in the near term.
The Bank of England (BoE) voted 6-3 to leave the interest rates unchanged at 3.75% last week, with three policymakers favoring a rate hike. BoE Governor Andrew Bailey pushed back against expectations of an imminent tightening cycle, saying the disinflation process remains intact. Markets are now pricing in just one rate hike by the end of the year, while US-Iran conflicts continue to add uncertainty to the economic outlook.
GBP range trade persists as UOB sees consolidation after failed downside extension
Analysts at UOB Group note that the Pound’s recent pullback from the spike to 1.3506 has not developed into a deeper correction. They recall that “when GBP was at 1.3430, we highlighted that ‘the pullback has scope to extend but given that there has been no clear increase in downward momentum, any decline is likely part of a lower range of 1.3400/1.3475.’” However, they concede that “the subsequent price movements did not unfold as expected,” with GBP instead trading “in a relatively quiet manner between 1.3423 and 1.3456.” In UOB’s view, “the price movements are likely part of a range-trading phase,” and for today they “expect GBP to trade between 1.3425 and 1.3470.”
Technical Analysis: Bullish tone of GBP/USD prevails above the key 100-day SMA
In the daily chart, GBP/USD holds a modest bullish bias as it trades above the 20-day Bollinger middle band and the 100-day moving average, which together provide a supportive floor just beneath spot. The upper Bollinger band caps the immediate topside, while a mid-50s Relative Strength Index (14) at 56.9 suggests positive but not overstretched momentum, hinting that dips are likely to attract buyers while gains may slow into overhead supply.
On the downside, initial support is located in the 1.3405 area, where the 20-day Bollinger middle band converges with the 100-day moving average, with a deeper cushion emerging at the lower Bollinger band near 1.3270. On the topside, the next notable resistance is the upper Bollinger band at 1.3535, and a daily close above this level would reinforce the constructive tone and open the door to further gains in the short term.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.