GBP/USD Gains as Dollar Weakens on Fed, BoE Uncertainty

The GBP/USD pair traded higher to around 1.3560[1] in Tuesday's early European session, marking its strongest level since mid-August. Investors reckon that the action comes as the US Dollar weakens relative to the Sterling, strained by weaker American jobs figures[2] that validate anticipations of additional Federal Reserve rate deductions. According to market reports, investors are still concerned about the upcoming United States Nonfarm Payrolls Revision of Benchmark[3] that is expected later in the day as it may give fresh indications of the labour market situation and affect the future Fed policies.

Market reports note that the US jobs figures[4] on Friday showed slower hiring in August, and unemployment rose to its highest point since 2021. The numbers underline the evident cooling of the labour market[5], which is an indicator that the situation in the largest economy of the world is losing momentum. Market reports note that investors are now looking at how this softer trend would influence future economic policy and market expectations.

Some analysts[6] believe the US labour market might actually have been weaker than initially reported, and benchmark revisions would cut up to 800,000 jobs between April 2024 and March 2025. Such figures are said to indicate that the Federal Reserve[7] has been dragging behind with regard to supporting full employment. Market commentators indicate that markets now have a fixed expectation of a rate cut at the Fed September meeting[8]. CME FedWatch tool indicates that there is an 89.4% probability of a 25 basis point cut and a more severe decrease of 50 basis point is assigned a 10.6% chance of decrease as traders are becoming increasingly worried of the economic momentum.

Anticipations that the Bank of England (BoE)[9] might postpone the reduction of interest rates can curb the profitability of the GBP/USD currency pair. Market reports[10] suggest that the BoE is now expected by HSBC to keep rates unchanged until April 2026, abandoning its earlier expectation of quarterly reductions by August 2024. Likewise, Deutsche Bank has revised its expectations and has delayed the next rate cut till December rather than November. It is anticipated that the monetary policy confusion may continue to hold markets back in the coming months.

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USD/JPY Slips on Political Uncertainty, Tariffs, Strong Economy

The Japanese Yen also added to its intraday gains on a widely depreciated US Dollar, driving the USD/JPY trading towards the 147.00[11] in Tuesday's Asian trading. It is believed that the action followed the signing of an executive order by the US President Donald Trump[12] last Thursday that would cut tariffs imposed on Japanese car imports to provide relief to the trade prospects of Japan. In the meantime, updated figures indicated that Japan's economy[13] had increased more vigorously in the second quarter than it had been thought to. It is believed that increased household spending[14] and a rise in real wages have further strengthened expectations that the Bank of Japan (BoJ) may raise interest rates sooner rather than later. Market commentators[15] point out that these factors have underpinned demand for the Yen, helping it build momentum and hold its ground against the Dollar in this session.

According to market reports[16], the decision by Japan Prime Minister Shigeru Ishiba to resign over the weekend has thrown the political factor into uncertainty and this can slow down the plans of the Bank of Japan to normalise policy. Nevertheless, this has not affected the demand in the safe-haven Yen[17], which continues to be supported by overriding market sentiment. Meanwhile, the US dollar[18] has declined to its lowest point since late July, under pressure of increasing expectations of further Federal Reserve rate cuts. According to market reports[19], these factors would imply that the USD/JPY pair will be on a downward trend in the near future.

According to some analysts, the USD/JPY pair did not manage to stay above the significant 200-day SMA[20] and fell under the 148.00 level, staying within the hands of the sellers. In the daily chart[21] indicators, there is a new downward momentum, which indicates that the bias of the pair is negative. Market commentators consider that a sustained decline below 147.00[22], then a breach of the 146.80-146.70 zone of support would confirm the bearish view. Market reports[23] point out that this may clear the path to the August low of about 146.20 and can extend to even a reduction to the psychological level of 146.00 in case the selling forces persist.

Market reports[24] note that the USD/JPY pair has some immediate resistance at the 147.50-147.55 range, and the current Asian session high serves as a barrier. It is reckoned that such decisive action might lead to short-covering, which might aid the two to revisit the 148.00 mark. Additional momentum, though, could level off at the 200-day SMA[25] around 148.75. Market reports[26] point out that the next challenges are the 149.00 round and 149.20 which is the one month peak of last week. It is also anticipated that an extended pause above these levels may reverse mood to the bullish side[27] (an optimistic attitude toward the market or a specific investment), and clear the way to the 150.00 psychological level with a possible retest of the August swing high at 151.00.

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NZD/USD Rises as Fed Rate Cut Expectations Weigh on Dollar

The NZD/USD pair has been trading upwards to the 0.5950[28] mark in the early discussion in the Asian market today and the Kiwi is pegged by rising expectations that the US Federal Reserve will announce a severe cut in interest rate. The New Zealand Dollar (NZD)[29] is thought to have gained as the US Dollar is put under stress. Market reports note that next week, the market participants will shift their bases to US Producer Price Index (PPI)[30] releases of August, to be released on Wednesday, which may offer additional guidance to the pair.

According to the reports, the US economy[31] generated only 22,000 jobs in August, approximately half of what was predicted, and July improved only slightly to 79,000. The unemployment rate[32] rose slightly to 4.3% as compared to 4.2% as per the expectations, and it indicates a declining labour market. Traders are now anticipating the Federal Reserve[33] may reduce interest rates again this month following the weak report. Market commentators[34] indicate that futures markets currently indicate a probability of about 90% of a 25 basis point reduction and a probability of 10% of a more drastic reduction of 50 basis points.

According to the market reports, the US inflation data[35] that is due to be released this week will be monitored. Headline PPI[36] in August is projected to increase 3.3% year-on-year, core PPI is projected at 3.5%. According to market reports[37], such figures will be instrumental in determining the next policy action of the Federal Reserve. In case the data is stronger than anticipated, it may favour the US dollar and burden the currency pair, since markets re-evaluate the probability of a tightening monetary policy in the future.

Market reports[38] point out that the New Zealand dollar (NZD) may also fall under pressure in case the reserve bank of New Zealand continues to take a dovish position (a monetary policy stance that favours lower interest rates, increased money supply, and accommodative actions to stimulate economic growth and reduce unemployment). In August, the New Zealand’s Central Bank[39] reduced the Official Cash rate to 3.0% due to poor economic growth. As expected, policymakers observed that they can reduce rates further in case inflation subsides. Market commentators[40] note that this is an indication that the central bank is cantered in supporting recovery and at the same time maintain price pressures in the medium-term.

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EUR/GBP Slips as UK Retail Sales Boost Pound Strength

The EUR/GBP pair slipped back in Tuesday's Asian trading and traded near 0.8670[41] after two sessions of gains. The Pound is said to have been supported by better-than-anticipated British Retail Consortium (BRC)[42] retail sales figures. According to market reports, like-for-Like sales increased 2.9% year-on-year in August, which is a very positive rebound compared to the 1.8% increase in July and it surpasses the market expectations of 2% growth. For some market analysts, it was the quickest rate of increase in four months, providing a spur to sterling sentiment, and putting a strain on the performance of the euro versus pound in early trade. It is also noted that markets will monitor whether momentum will continue in Europe.

The BRC[43] reported encouraging August sales figures, but cautioned retailers that poor consumer confidence still hangs over the prospects in the build-up to Christmas. According to market reports[44], the industry continues to experience the pressure of elevated cost of borrowing, escalating energy prices, and broader economic anxiety. Market reports[45] point out that the government budget is coming up in November, and many people are still apprehensive over the amount of spending in the next few months. Retailers[46] are thought to be preparing to face a difficult festive season although they hope to record better trade.

Market commentators[47] believe that the EUR/GBP pair might cling on to some strength as the Euro gets support before the European central bank (ECB) policy meeting on Thursday. It is widely expected in markets that the ECB[48] would maintain interest rates at the same level in the second month of September due to the continuous stability of the economy and inflation near the target. It is the opinion of some reports[49] that investors may watch the press conference keenly to give indications on the position that the ECB will take in the future, especially with respect to growth and the inflationary picture in the coming months, which will help guide the direction of the Euro.

Market reports[50] indicate that the third-largest economy of Europe, France, is going through a new wave of political instability following a vote of confidence defeat by Prime Minister Francois Bayrou in the National Assembly. Prime Minister Bayrou[51] had also taken many by surprise when he had announced the vote personally after his budget plans had been severely criticized. Following his defeat, the President Emmanuel Macron[52] is now likely to have a new prime minister in the coming days, according to the BBC, as uncertainty builds on future political direction of France.

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