The Pound Sterling was trading lower against the US Dollar, sending the GBP/USD to roughly 1.3490 in Wednesday’s European trading session. The currency fell under the key 1.3500 level before the expected Consumer Price Index (CPI) numbers for May to be released later today. This decrease comes on the heels of a major sell-off that started Tuesday, largely because of underwhelming labor market data from the U.K.
Over the past few trading days the Pound Sterling’s 14-day Relative Strength Index (RSI) has steeply declined. It has slipped below the neutral level of 50. This trend is a sign that any possible positive movement for the currency is likely short-lived at this juncture. The Pound has become the weakest of the bunch against the Swiss Franc. This value drop is indicative of larger market trends affecting the NFT and crypto sectors.
Employment Data Influences Bank of England Expectations
UK Office for National Statistics (ONS) employment data released last week sent shockwaves through the labor market. The outlook gets worse by the day for prospective job seekers. This surged the unemployment rate to 4.6%, its highest level since July 2021. First, the job creation numbers have worsened dramatically, and wage growth has even ground to a halt. Consequently, market expectations are increasing that the Bank of England (BoE) will lower interest rates in August.
HSBC analysts noted, “Weak jobs and slower pay growth may tip the balance in favour of an August cut.” This declaration in itself justifies the path for more monetary policy changes that would only add to downward pressure on the Pound’s performance against peers.
The repercussions of a rate cut are considerable for the Pound Sterling. This is because lower interest rates tend to make a currency less attractive to investors in search of a yield. Trade markets are watching these moves closely. Next, they predict how these policy changes will play a role in BoE’s monetary policy decisions in the future.
Market Reactions to US Inflation Data
With the US inflation figures due this week, sentiment towards the Pound Sterling is tentative. A drop in US inflation numbers tends to lift the GBP. An increase makes it stronger. Those numbers will go a long way in influencing market expectations as to what the Federal Reserve may do with monetary policy. Ultimately, this will shape the trading environment for GBP/USD.
On Tuesday, the GBP/USD currency pair continued to be under heavy selling pressure after rejected attempts to break three-year high of 1.3617. Analysts believe this barrier represents a key psychological barrier for the Pound Sterling. The recent drop has retaken prices down towards the 20-Day Exponential Moving Average (EMA) ~1.3467. This movement highlights the reinforcing nature of the near-term trend and the unpredictable direction of this market.
The US inflation data awaiting release has added to this feeling of uncertainty to the currency markets. Traders are preparing for big volatility. Their approaches will be based on if and how inflation numbers come in as predicted—or not.
Broader Context and Future Outlook
Pound Sterling’s strong bearish tone of late has been driven by a slew of worse than expected UK economic data. Changing mood on the market is key here too. A series of weak employment figures have recently brought those hopes into serious question. The market’s expectations for rate cuts has led to a bearish sentiment towards the currency.
The Pound Sterling is sliding against all major currencies on Wednesday. This drop underlines ongoing investor concerns over the strength and durability of the UK economy. This weakness is most noticeable when compared to bullish currencies like the Swiss Franc. It has repeatedly failed to retain competitive firepower in that space.
Moving forward, observers will be keenly focused on both domestic UK data and international economic indicators to assess how these factors will shape the future trajectory of Pound Sterling. Considering the dire market conditions and economic metrics, the outlook certainly seems to demand a careful disposition for traders traversing this turbulent landscape.