Pound Falls on UK Fiscal Fears; Traders Eye US Economic Data

The Pound Sterling fell against the US Dollar in Thursday's early Asian session and GBP/USD traded around 1.3430[1]. The weakness is believed to be the result of renewed fears of Britain's Financial Stability Report[2] which, still, hangs upon sentiment. Traders are closely monitoring future US economic reports[3] which are due later in the day such as weekly Initial Jobless Claims, ADP Employment Change, and the ISM Services PMI. Investors reckon that such releases[4] will give the US Dollar a new direction and may influence the next movement of the pair.

UK Finance Minister Rachel Reeves[5] confirmed on Wednesday that she will set her annual budget on 26 November. She emphasized that the economy is not broken, and assured a tight rein over government spending. Reeves explained that this is one of the ways to curb inflation and lower the cost of borrowing. Some analysts note that there is a concern that the government [6] cannot take care of the finances of the country in a responsible manner. These concerns keep on eroding the confidence of the market as the Pound[7] fell against the US dollar. Investors[8] are still wary, balancing what Reeves is promising against their increasing concerns regarding fiscal prudence and the UK economy across the board.

The US Bureau of Labour Statistics (BLS)[9] lists 7.181 million vacancies as of the end of July. Global reports[10] note that this is down on the June figure of 7.357 million which had been revised to 7.437 million. July was also lower than market expectations of 7.4 million. Market experts point out that the data indicates that there is a slight deceleration in the labour demand, implying a slower rate of hiring as compared to the past few months.

It is believed that the weaker UK labour market statistics published on Wednesday reinforced forecasts that the US Federal Reserve[11] can reduce interest rates this month. This possibility is perceived to press on the US Dollar, contributing to the losses in the key currency pair. As per the CME FedWatch tool[12], traders are currently placing 97% probability of a rate cut in September, which was 91% only a week before. The markets[13] are also taking into consideration approximately 139 basis points of rate cuts by the end of next year.

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USD/CAD Rises on Weak Oil, US Jobs Ahead Market Reports

The US Dollar to Canadian Dollar (USD/CAD) pair has recorded a fourth consecutive increase in gains and traded around 1.3810[14] during Thursday's Asian session. It is estimated that the Canadian Dollar[15] is expected to stay under pressure, in part because of lower crude oil prices, which tend to affect the commodity-based currency. To this effect, it has been reported that OPEC+[16] will in its meeting this weekend discuss potential increases in its production. To reclaim market share, the group[17] is weighing increasing a portion of its current output restrictions, which might total an additional 1.65 million barrels/day, or about 1.6 percent of world demand.

The US Dollar[18] is also believed to be strengthening in an effort to push the USD/CAD pair up ahead of major labour market reports. Investors are also concerned about the slower hiring in the ADP Employment Change[19] and weekly Jobless Claims that could increase marginally. This will be followed by Friday when Nonfarm Payrolls will be in focus and expectations of the US economy adding approximately 75,000 jobs[20] in August. The unemployment rate is anticipated to be 4.3%. Market experts[21] believe that these figures will be widely analysed since they have the potential to greatly influence the Federal Reserve's interest rate decision at its September meeting.

The US Dollar is believed to have been put under pressure when July JOLTS Job Openings[22] dropped to 7.18 million, which is lower than the projected 7.4 million and the lowest level since September 2024. The weaker evidence on the labour market has given rise to the speculation that the Federal Reserve[23] will reduce interest rates in September. The CME FedWatch tool[24] now puts the likelihood of a 25-basis-point cut at 97% against 92% the day before, which further supports the view that the Fed will alter its policy to keep the economy afloat.

Investors await Statistics Canada[25] to release and present labour market data on Friday. Economists[26] believe that August will see an increase in employment by 7,500 jobs following a severe decline in July of 40,800. It is however expected that the jobless rate might go slightly higher and rise to 7, indicating that the market is still under some pressure, despite the slight improvement.

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EUR/USD Dips as Eurozone Retail Sales Data Awaits Market Reaction

The euro fell against the US dollar in Thursday's Asian hours, and traded at around 1.1650[27] after weak gains on Wednesday. The pair is believed to be wearing out their welcome because markets are waiting to see the new Eurozone Retail Sales data[28]. Market reports suggest that attention will be on major US data[29] that is released later in the North American session, including the weekly Initial Jobless Claims, the ADP Employment Change and the ISM Services PMI. It is believed that such releases might provide the currency pair with new momentum and expectations regarding future economic output and monetary policy.

Eurozone retail sales[30] are projected to increase by 2.4% in July compared to the 3.1% increase in June. Sales[31] are expected to decline by 0.2 every month, as compared to 0.3 in the last month. Market reports[32] note that these numbers indicate that consumer momentum is possibly decelerating. Investors and policymakers are now thought to focus on the second-quarter GDP results in the Eurozone[33], which may provide a more accurate reflection of the general state of the economy, and Germany factory orders in July, which were released on Friday, will be of interest as well.

Market experts[34] opine that the euro could rebound against the US dollar since softer labour data is more likely to stimulate higher expectations of a Federal Reserve rate cut in September. The most recent JOLTS report[35] indicated that the number of job vacancies declined to 7.18 million in July, compared to 7.35 million the previous month, and it was below the 7.4 million prediction. Investors note that this weaker-than-expected number has cast doubt on the US job market[36]. Markets now see a 97% probability of a 25-basis-point reduction, versus 92% yesterday, according to the CME FedWatch tool[37].

Minneapolis Fed President Neel Kashkari[38] warned on Wednesday that consumer prices are increasing because of tariffs, putting strain on inflation. He said that the US economy now seems to be heading more confidently to the so-called soft landing, which is the state of slowed growth without entering the recession. Meanwhile, Atlanta Fed President Raphael Bostic[39] emphasized that high inflation is the most important issue of the Federal Reserve. Yet he also cited evidence of fragility in the labour market, which might indicate that the central bank is capable of delivering only a single small interest rate cut, a quarter point, by the end of the year.

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GBP/JPY Steady Near 199.00 Despite Mixed UK, BoJ Signals

The GBP/JPY pair did not have any definite intraday direction as it oscillated slightly between minor losses and gains. In Thursday's Asian session the pair traded around the 199.00[40] mark without any impetus towards a decisive move either way.

UK Finance Minister Rachel Reeves[41] emphasized on Wednesday that she was going to keep a tight rein on public expenditure in order to bring down inflation and borrowing rates. Her remarks quelled some fears regarding the state of government finances, which had been rattled by the recent steep selloff in UK government bonds. Meanwhile, a UK Services PMI[42] report that was stronger than expected contributed to a marginally more optimistic picture. Market reports[43] observed that these moves were giving slight support to the British Pound, especially against the Japanese Yen in the GBP/JPY cross.

Some analysts point out that the Japanese Yen continues to be under pressure because of domestic political uncertainty and doubt on the Bank of Japan (BoJ)[44] rate decisions. This week, BoJ Deputy Governor Ryozo Himino[45] suggested that there was no real need to increase the already low borrowing rates in Japan. Conversely, Governor Kazuo Ueda[46] indicated the Bank is ready to continue increasing the interest rates should economic growth and inflation unfold as per its projection. It is believed that such mixed messages may influence markets about the future policy decisions of the BoJ[47].

The investors are optimistic that the Bank of Japan[48] is still expected to pursue policy normalisation, as evidenced by stable wage growth, ongoing inflation, and economic recovery. Contrastingly, Bank of England Governor Andrew Bailey[49] has indicated that interest rates will tend to go down gradually over time. The traders are seen to have become more wary of this obvious difference of perspective between the two central banks. Consequently, there is a headwind to the GBP/JPY cross in the short term as the appetite of aggressive positions is constrained.

In the European session, traders wait as the UK Construction PMI[50] releases new direction on Thursday. Then the focus will be on the wage growth rates in Japan, which is one of the primary factors behind the anticipation of the Bank of Japan[51] hiking its rates next. It is believed that such data may affect the mood of the Japanese Yen and will probably determine the future direction of the GBP/JPY[52] exchange rate in the short term.

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