As of this writing, the GBP/USD currency pair is hovering in the 1.3425 range. Earlier this week, it recovered from a one-month low. On Thursday, the British Pound (GBP) is stabilizing against the US Dollar (USD). Traders are on the defensive again today as fears of the United Kingdom’s fiscal outlook spike. We got some mixed U.S. labor market data as well, with decent job growth but rising unemployment. This strong data has been putting pressure on the US Dollar Index to hold a solid bid above 98.00.
On Wednesday, GBP/USD popped off of its recent low, but a failure to continue higher made for a difficult bullish environment. Through Thursday morning, the duo traded right around Wednesday’s session-high of 1.3430. This latest movement signals yet another round of consolidation in this fast-growing market.
Investor sentiment
Traders are proceeding cautiously as they digest the most recent economic data. Together, these reports provide an incomplete but nonetheless concerning picture of the US labor market and wider economic conditions.
Today’s data further underscores the weakness in US private payrolls, which added only 54,000 jobs in August. This figure was a big miss on expectations, which had forecast an addition of 65,000 jobs. It marked a shocking drop from July’s revised total of 106,000. The S&P Global Composite Purchasing Managers’ Index (PMI) plunged to 54.6 from 55.4. This drop represents an early warning of a potential cooling in economic growth.
The ISM Services PMI rolled back overall movement, but thankfully not the direction of travel, with an increase to 52. It was higher than expectations of 51 and an increase over July’s reading of 50.1. This mixed economic backdrop has left GBP/USD buyers cautious, particularly as they navigate the complexities of the UK’s fiscal credibility.
Fears about the UK’s fiscal health have weighed on the Sterling. Investors remain worried about their second order ramifications on economic stability. They are worried about growth prospects because of talk of the re-emergence of fiscal austerity. These worries have continued to weigh on the GBP as market players judge what these developments mean for the GBP in the long run.
Meanwhile, the Q2 Nonfarm Productivity shot up to 3.3%, much better than the advance estimate of 2.4%. This amendment serves to further complicate an already problematic economic story. At the same time, unit labor costs moderated to just 1.0%, much less than the 1.6% that was expected. These figures reflect an improvement in productivity, which could bolster economic confidence. The overall labor market data remains a source of concern.
Additionally, weekly initial jobless claims have risen sharply to 237,000, up from the 229,000 claims filed last week. This new uptick in unemployment claims adds a layer of uncertainty to an already complex economic environment and could impact future decisions regarding monetary policy.
On Thursday, long-dated gilt yields the UK government bond market settled. This decrease came in the wake of massive increases earlier this week that drove yields to their highest points since 1998. Today’s drop in yields is welcome respite for distressed investors. Many of them have been concerned about increased borrowing costs as a result of fiscal imbalances.