Get ready for a rollercoaster ride as we dive into the world of currency fluctuations and economic surprises! The Pound Sterling's journey is about to get even more intriguing.
As Friday's European trading session unfolded, the Pound Sterling (GBP) held steady at around 1.3470 against the mighty US Dollar (USD). Despite the USD Index facing some selling pressure, the GBP/USD pair remained flat, hinting at a potential weakness in the British currency.
But here's where it gets controversial... The Sterling's performance took a hit due to rising expectations that the Bank of England (BoE) might further cut interest rates this year. BoE's dovish stance accelerated this week after the release of UK labor market data, which showed an increase in unemployment and a slowdown in wage growth. The Unemployment Rate jumped to 4.8%, the highest since March 2021, sending shockwaves through the markets.
Money market consensus predicts a 46-basis-point (bps) interest rate cut by the BoE this year. However, not everyone agrees. BoE Monetary Policy Committee (MPC) member Catherine Mann, known for her hawkish views, has voiced opposition to further rate cuts. Mann believes that the UK labor market is only moderately weakening and that it's not time to expand monetary policy further. "The labor market has loosened modestly, but it's not falling off a cliff," Mann stated during an event in Washington, as reported by Reuters.
On the fiscal side, UK Chancellor of the Exchequer Rachel Reeves confirmed that the government won't increase wealth tax in the upcoming Autumn Budget. However, she hinted at further tax hikes and cuts in public spending.
Now, let's take a closer look at the Pound Sterling's performance today. The table below showcases the percentage change of the British Pound (GBP) against major currencies. Interestingly, the GBP was the weakest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF |
| --- | --- | --- | --- | --- | --- | --- | --- |
| -0.11% | 0.02% | -0.43% | -0.06% | 0.30% | 0.00% | -0.45% |
| 0.11% | 0.15% | -0.33% | 0.08% | 0.47% | 0.12% | -0.34% |
| -0.02% | -0.15% | -0.44% | -0.11% | 0.30% | -0.04% | -0.53% |
| 0.43% | 0.33% | 0.44% | 0.35% | 0.76% | 0.40% | -0.05% |
| 0.06% | -0.08% | 0.11% | -0.35% | 0.37% | 0.06% | -0.44% |
| -0.30% | -0.47% | -0.30% | -0.76% | -0.37% | -0.35% | -0.79% |
| -0.01% | -0.12% | 0.04% | -0.40% | -0.06% | 0.35% | -0.50% |
| 0.45% | 0.34% | 0.53% | 0.05% | 0.44% | 0.79% | 0.50% |
The heat map above illustrates the percentage changes of major currencies against each other. For example, if we pick the British Pound from the left column and move to the US Dollar, the box displays the percentage change of GBP/USD.
In today's market movers, the Pound Sterling exhibited a mixed performance against its currency peers. The USD faced pressure due to trade tensions between the US and China, as well as growing expectations of a dovish Federal Reserve (Fed) monetary policy for the remainder of the year. At the time of writing, the US Dollar Index (DXY) traded near a 10-day low around 98.10.
Trade relations between the US and China, the world's two largest economies, are strained. Washington imposed additional 100% tariffs on Chinese imports in response to Beijing's export controls on rare earth minerals. However, a meeting between US President Donald Trump and Chinese leader Xi Jinping later this month in South Korea is still on track. US Treasury Secretary Scott Bessent confirmed that Washington doesn't want to "decouple" from China but cannot allow Chinese bureaucrats to manage the global supply chain and manufacturing processes.
Leaders worldwide have criticized China's rare earths export control measures. UK Chancellor of the Exchequer Rachel Reeves called China's decision "wrong" and "dangerous" for the world economy, welcoming a greater Group of Seven (G7) focus on critical mineral sourcing.
Additionally, speculation of a more than 50-basis-point (bps) interest rate reduction by the Federal Reserve intensified amid growing US labor market concerns, weighing on the US Dollar. According to the CME FedWatch tool, traders fully expect at least a 50-bps rate cut this year and see a 19.6% chance of a 75-bps cut.
Technically speaking, the Pound Sterling traded flat at 1.3470 against the US Dollar on Friday. The GBP/USD pair struggled to extend its recovery above the 20-day Exponential Moving Average (EMA) around 1.3423. The 14-day Relative Strength Index (RSI) oscillated within the 40.00-60.00 range, indicating a sideways trend.
Looking ahead, the August 1 low of 1.3140 will act as a key support zone, while the psychological level of 1.3500 will serve as a key barrier.
The ILO Unemployment Rate, a leading indicator for the UK economy, is calculated by dividing the number of unemployed workers by the total civilian labor force. A rise in this rate signals a lack of expansion in the UK labor market, leading to a weakening of the UK economy. Generally, a decrease is seen as bullish for the Pound Sterling (GBP), while an increase is bearish.
The Unemployment Rate is the broadest indicator of Britain's labor market, with its publication having a significant impact despite being released around six weeks after the month ends. It's an essential metric for understanding the health of the UK economy.
And this is the part most people miss... There's an inverse correlation between unemployment and inflation. A higher-than-expected Unemployment Rate tends to be GBP-bearish, as it indicates a potential slowdown in the UK economy.
So, what do you think? Will the Pound Sterling continue its mixed performance, or will it surprise us with a strong recovery? Share your thoughts in the comments below! We'd love to hear your insights and predictions.
