GBP/USD forecast improved ahead of US CPI and UK payroll data The GBP/USD pair rose in quiet trading, reflecting price action across the FX market, in the first half of Monday’s session. The absence of any significant proximity means that markets will start off to a frosty start to the week, although this could be the calm ahead of the storm as we have important inflation data coming from the US in the middle of the week. GBP/USD forecast could be affected Also with the UK wage data coming on Tuesday.
Sterling managed to close last week’s lows after coming under pressure from the slightly more dovish Bank of England on Thursday morning before finding support through a batch of disappointing U.S. jobless claims data later in Thursday’s session, and surprisingly strong UK growth data on Friday. . More volatility is expected in the future for sterling, with wages in the UK releasing on Tuesday.
Meanwhile, the US dollar will be the focus this week, as forex investors look ahead to Wednesday’s Consumer Price Index (CPI), which will be the next big catalyst for GBP/USD and USD in general.
The US dollar was able to hold on thanks to concerns about the sticky nature of inflation in the United States, which kept monetary policy tight for longer. But if the U.S. inflation data comes as a surprise on the downside, it could cause it to fall sharply as investors price more 2024 interest rate cuts than both expected .
The impact of central banks’ expectations on the pound sterling
The pound gained against the U.S. dollar on Monday, but the currency remains within a steady trading range ahead of this week’s major trading events, most of which will come from the US.
The Bank of England’s monetary policy meeting ended in May. Interest rates have not been changed, but markets still have the impression that a cut in June is still on the table even if a move in August is more likely.
Perhaps the prospect of the Bank of England moving ahead of the Fed should have weakened the pound even more than it happened.
After all, futures markets do not expect US borrowing costs to fall before September. Moreover, even this may be optimistic judging by the recent hawkish comments from the Fed’s ratemakers. Governor Michelle Bowman said last Friday that she did not think it would be appropriate for the Fed to cut interest rates at all this year. Of course, they don’t speak for everyone, but it seems certain that the interest-rate cut faction will have a debate about how to achieve its goal.
Sterling remains relatively buoyant for one reason as the forecasts of both central banks remain heavily dependent on data that we have yet to see, and inflation remains above target on both sides of the Atlantic. Expectations can change quickly and traders know it.
On the other hand, the UK economy has performed better than many thought at the start of this year, with the latest growth data beating expectations and pointing to a less superficial and much shorter recession earlier this year than usual, with big company stocks in London. With the stock index rising to record highs, the country is benefiting from a rebound in market risk appetite.
UK employment outlook sparks market anticipation
The British pound rose slightly on Monday. GBP/USD is up 0.20% and is trading at 1.2557 during the European session at the time of writing..
UK job growth is expected to slow
The UK labor market held well despite higher interest rates but cracks appeared and Tuesday’s jobs report is expected to be weak. Employment change is expected to decline by 215,000 in the three months to March, after falling by 156,000 in the previous version. UK wage growth including bonuses is expected to fall to 5.3%, down from 5.6% and the unemployment rate is expected to rise. to 4.3% from 4.2%.
The Bank of England will be closely monitoring Tuesday’s employment report. Lower employment and wage growth will indicate that the labor market continues to slow which could complicate the Bank of England’s plans to cut interest rates..
The UK ended last week higher, with GDP growing 0.6% quarter-on-quarter in the first quarter, higher than market estimates of 0.4%. Stronger data still leaves a question mark over the central bank’s interest rate trajectory, with market pricing for a June rate cut at around 48%. The governor of the Bank of England was not committed to raising rates in June during his press conference at last week’s policy meeting. However, Bailey did not rule out a rate hike in June, saying he was “optimistic that things are moving in the right direction.””.
In the United States, the University of Michigan’s consumer confidence index fell to 67.4 in May, compared to 77.2 in April, lower than market estimates of 76.2. One-year inflation expectations rose from 3.2% to 3.5%, suggesting consumers are less confident about declining inflation.
