Sterling Slightly Rises Ahead of US Jobs Data, Bank of England’s Rate Hiking Cycle Under Scrutiny
The pound saw a marginal increase against the dollar on Friday as traders awaited key US jobs data and considered the potential end of the Bank of England’s extensive rate-hiking cycle. At 0948 GMT, the pound was 0.1% higher against the dollar at $1.2197, and remained virtually unchanged against the euro at 86.50 pence.
In recent weeks, the pound has weakened against the dollar due to a stronger-than-expected US economy, which has led to speculations that US interest rates could rise further. Conversely, there are indications that the Bank of England is nearing the end of its tightening cycle.
Market players predict that the pound will remain relatively stable until the release of the key US non-farm payroll data. An above-expectation reading would reinforce the likelihood of a further rate hike by the US Federal Reserve, leading to a stronger dollar. Nicholas Rees, an FX market analyst at Monex Europe, stated that a negative reading would raise concerns about the US labour market and potentially result in a haven bid for the dollar.
Rees added, “In our view, the path for a lower dollar and therefore higher cable [pound-dollar exchange rate] looks to be a narrow one this afternoon.”
A recent business survey revealed that British services companies experienced a less severe downturn in September than initially anticipated. This can be attributed to a surprise decrease in inflation and the Bank of England’s decision to maintain interest rates at their current level.
Rees commented, “The upwards revision to the September flash PMIs suggests the UK is not heading into a recession for now, something likely to be confirmed in the upcoming GDP print.”
The UK’s August GDP numbers are set to be released on Thursday.
Traders now believe that there is a 73% chance of no rate change at the Bank of England’s next policy meeting on November 2, following a pause at the previous meeting. There is also a slight possibility of a 25 basis points hike.
Additionally, data from mortgage lender Halifax revealed that British house prices fell at their fastest pace since 2009 over the 12 months leading up to September. This aligns with other indicators of a cooling housing market amid rising interest rates.
The pound’s next major data releases will be UK jobs data on October 17, followed by CPI data the following day.
More detail via Daily Mail Online here… ( Image via Daily Mail Online )