GBP/USD surges as weak US data fuels Fed rate-cut bets
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Christian Borjon Valencia
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05 Mar @ 03:21 (GMT+0)

GBP/USD surges as weak US data fuels Fed rate-cut bets

  • US ADP Employment misses expectations, adding just 77K jobs in February.
  • ISM Services PMI improves to 53.5 but rising prices fuel inflation concerns.
  • BoE officials signal caution on rate cuts, keeping GBP supported.

The Pound Sterling (GBP) extended its gains versus the US Dollar (USD) on Wednesday, as market participants punished the latter. Market participants priced in additional monetary policy easing by the Federal Reserve (Fed). United States (US) data shows the economy is weakening, with businesses and consumers turning pessimistic, mostly on trade policies. GBP/USD is trading at 1.2864, up over 0.55%.

Sterling jumps 0.55% to 1.2864 as traders punish the US Dollar

The US jobs market continues to slow down, as depicted by the ADP Employment Change for February. Companies added 77K people to the workforce, missing estimates of 140K and well below the 188K hired in January.

In the meantime, the ISM Services PMI in February rose by 53.5, up from 52.8 and exceeding forecasts of 52.6, an indication of business expansion. The Prices Paid sub-component rose sharply from 60.4 in January to 62.6, with New Orders and the Employment Index following suit.

GBP/USD traders have ignored the recent US data so far. Nevertheless, interest rate traders had priced in 74.5 basis points of Fed easing in 2025, down from the 81 bps expected a day ago.

Meanwhile, some Bank of England (BoE) members are crossing wires. Megan Greene commented that inflation is unlikely to persist and that it would fade at its own pace, though she added that policy needs to remain restrictive. BoE MPC member Alan Taylor said every meeting would be live for rate moves.

In the meantime, BoE Governor Andrew Bailey said they expect a pick-up in inflation. BoE Chief Economist Huw Pill added they need to remain vigilant and that evidence points against more rapid cuts in the Bank Rate.

The GBP/USD pair retreated somewhat on the headlines but remains within the 1.2850 – 1.2870 range.

GBP/USD Price Forecast: Technical outlook

GBP/USD shifted from neutral to upward biased after clearing the 200-day Simple Moving Average (SMA) at 1.2786. A daily close above this level would cement the uptrend and pave the way to challenge the 1.3000 mark. Otherwise, failure to close above the 200-day SMA will clear the way to test the 1.2700 figure.

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.