- Sterling remains under pressure as investors expect higher UK government bond yields could force Chancellor Reeves to cut spending and raise taxes in the autumn budget.
- BoE’s Breeden said the latest evidence supports a gradual phasing out of policy restrictions.
- The further movement of the dollar will be influenced by the US NFP data for December.
The pound sterling (GBP) continues to underperform its main competitors, impacted by rising external financing costs of the UK government’s debt. The UK 30-year government bond yield rose to 5.36%, the highest level since 1998, causing discomfort to Chancellor of the Exchequer Rachel Reeves.
Market participants have started abandoning British gold-plated securities amid fears of higher debt, lower growth and US President-elect Donald Trump’s potentially inflationary policies that could lead to economic stagflation. Investors expected that higher Treasury yields would force Rachel Reeves to take out up-to-date loans to finance everyday expenses. Earlier, Reeves promised to finance everyday spending with tax revenues and reduce public spending.
The British Ministry of Finance remained resolute in not seeking up-to-date loans. British Treasury Secretary Darren Jones explained in the House of Commons on Thursday that the government’s decision to borrow solely for investment purposes is “non-negotiable.” Jones added that “fluctuation” in bond prices is normal and assured that financial markets continue to function in an “orderly manner.”
Darren Jones also confirmed that public spending would be “in line with what was set out in the autumn budget” and added that there was no need for “emergency intervention” from the Chancellor.
As UK Treasury yields soar, BoE deputy governor Sarah Breeden said the rise in the government’s borrowing costs is partly linked to uncertainty over “US President-elect Donald Trump’s upcoming policies” in her speech at US University. Edinburgh. Asked about her view on the monetary policy outlook, Breeden replied: “Recent evidence further supports the need to phase out ‘tightness’. She added that the phasing out of the policy restrictions would be “gradual” over time.
PRICE OF THE British Pound today
The table below shows the current percentage change of the British Pound (GBP) against the major listed currencies. The British pound was strongest against the New Zealand dollar.
| USD | EUR | GBP | JPY | BOOR | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.01% | 0.18% | -0.21% | 0.16% | 0.18% | 0.33% | 0.03% | |
| EUR | 0.01% | 0.19% | -0.21% | 0.17% | 0.19% | 0.34% | 0.04% | |
| GBP | -0.18% | -0.19% | -0.37% | -0.03% | 0.00% | 0.15% | -0.14% | |
| JPY | 0.21% | 0.21% | 0.37% | 0.37% | 0.38% | 0.52% | 0.23% | |
| BOOR | -0.16% | -0.17% | 0.03% | -0.37% | 0.01% | 0.17% | -0.13% | |
| AUD | -0.18% | -0.19% | -0.01% | -0.38% | -0.01% | 0.14% | -0.15% | |
| NZD | -0.33% | -0.34% | -0.15% | -0.52% | -0.17% | -0.14% | -0.30% | |
| CHF | -0.03% | -0.04% | 0.14% | -0.23% | 0.13% | 0.15% | 0.30% |
The heat map shows the percentage changes of the major currencies relative to each other. The base currency is selected from the left column and the quote currency from the top row. For example, if you select British Pound from the left column and move along the horizontal line to US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Daily Market Change Summary: Pound Sterling Underperforms US Dollar and US NFP Is on the Horizon
- During Friday’s session in London, the pound sterling falls to nearly 1.2275 against the US dollar (USD). GBP/USD is under pressure as the US dollar strengthens ahead of December US non-farm payrolls (NFP) data, due at 13:30 GMT. Investors will be paying close attention to the US NFP report as the Federal Reserve (Fed) adopted a dovish policy stance in September 2024 amid stern risks of deterioration in labor demand.
- The outcome of the Fed’s December monetary policy meeting showed that officials were less concerned about labor market conditions and more concerned about halting progress in the disinflationary trend. However, signs of faint labor demand may temper concerns that labor market conditions have not yet returned to a restorative state, which could force officials to backtrack from their cautious stance on further policy easing.
- The American NFP report is expected to show that 160,000 jobs were added to the economy in December. up-to-date employees, which is less than the previous publication, which amounted to 227 thousand. The unemployment rate is expected to remain steady at 4.2%. Investors will also focus on average hourly earnings data, a key measure of wage growth that influences consumer spending. Signs of powerful wage growth would raise fears of a renewed acceleration in price pressures. On the contrary, supple data will alleviate concerns about continued inflationary pressure.
- Economists expect average hourly earnings to grow at a steady 4% year-over-year. On a monthly basis, the measure of wage growth is estimated to have increased by 0.3%, slower than the 0.4% in November.
- According to CME’s FedWatch tool, investors believe the Fed won’t cut interest rates until its March meeting, but are divided on announcing policy in May.
Technical Analysis: Sterling sees support below 1.2200
On Friday, the pound sterling is trading near a more than one-year low of around 1.2250 against the US dollar (USD). GBP/USD faced a piercing sell-off after breaking below the January 2 low of 1.2350. The broader outlook for Cable remains bearish as the 20-day and 50-day exponential moving averages (EMAs) near 1.2490 and 1.2630, respectively, decline.
The 14-day relative strength index (RSI) is dropping sharply to around 30.00, suggesting powerful bearish momentum.
Looking down, the pair is expected to find support near the November 10, 2023 low at 1.2185. On the downside, the 20-day EMA will act as key resistance.
Economic indicator
Non-agricultural wages
The Nonfarm Payrolls publication presents the number of up-to-date jobs created in the U.S. over the previous month across all nonfarm businesses; is published by US Bureau of Labor Statistics (BLS). Monthly payroll changes can be extremely volatile. This number is also subject to powerful reviews, which can also create volatility in the Forex market. Generally, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months’ reviews and the unemployment rate are as vital as the headline data. The market reaction therefore depends on how the market evaluates all the data contained in the BLS report.
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