. Pound Sterling Slides: Impact of US NFP Data

Pound Sterling Slides: Impact of US NFP Data

Pound Sterling Slides: Impact of US NFP Data

05 Apr 2024

The British Pound continues its decline following upbeat US Nonfarm Payrolls data.

  • The Pound Sterling declines from 1.2680 amid escalating tensions in the Middle East, affecting risk-sensitive currencies.
  • Decreased UK inflation expectations bolster early rate cut prospects for the Bank of England, adding pressure on the Sterling.
  • Meanwhile, the US Dollar rebounds on robust US Nonfarm Payrolls data.

In the early American session on Friday, the Pound Sterling (GBP) experiences a notable decline to 1.2600. This weakening of the GBP/USD pair is attributed to the increased demand for the US Dollar following the positive United States Nonfarm Payrolls (NFP) data for March.

The latest labor market report revealed that Nonfarm Payrolls (NFP) for February surpassed expectations, reaching 303K compared to the anticipated 200K and the revised down previous reading of 270K from 275K. Concurrently, the Unemployment Rate declined to 3.8%, diverging from expectations and the previous rate of 3.9%. Monthly Annual Hourly Earnings grew by the anticipated 0.3%, while annual wage growth slowed to the expected 4.1% from the previous 4.3%.

Robust labor demand resulting in elevated wage growth, fueling inflation, might prompt the Federal Reserve (Fed) to postpone plans for rate cuts. Neel Kashkari, President of the Minneapolis Fed, cautioned on Thursday that if inflation stagnates, rate cuts may not be necessary this year. Kashkari also indicated his projection of two rate cuts for 2024 in the most recent dot plot.

Additionally, declining inflation projections in the United Kingdom have exerted downward pressure on the Pound Sterling. According to the latest Bank of England (BoE) Decision Maker Panel (DMP) survey for February, the majority of firms anticipate a moderation in both selling prices and wage inflation in the coming year. Projections for selling prices slowed to 4.1% from 4.3%, marking the lowest level in over two years, while expectations for wage growth eased to 4.9% on a three-month moving average basis, down from 5.2% in February.

Decreasing inflation forecasts are anticipated to heighten expectations for a rate cut by the Bank of England (BoE) at the June meeting. Growing prospects of earlier rate reductions by the BoE exert a negative impact on the Pound Sterling.

The Pound Sterling experiences a decline as the US Dollar strengthens.

The Pound Sterling continues its downward trend, reaching 1.2600 amid cautious market sentiment. Growing tensions in the Middle East and diminishing expectations of a Federal Reserve rate cut in June following the positive United States NFP report for March have contributed to the resurgence of the US Dollar.

The Pound Sterling depreciates amid investor anticipation of a potential shift towards rate cuts by the Bank of England in June, fueled by diminishing inflationary pressures. Market sentiments for BoE to initiate rate reductions from June received validation following remarks by BoE Governor Andrew Bailey, who deemed market expectations of two or three rate cuts this year as reasonable.

Furthermore, the release of the United Kingdom’s subdued Services PMI data for March on Thursday has influenced the economic forecast. The Services PMI declined to 53.1, falling short of both expectations and the previous reading of 53.4. Tim Moore, Economics Director at S&P Global Market Intelligence, remarked, “The rebound in service sector activity slowed somewhat in March, more than indicated by the preliminary PMI figures, yet the overall assessment remains relatively optimistic.”