The GBP/USD exchange rate recently hit its lowest point since mid-December, primarily influenced by positive employment data in the United States and comments made by Jerome Powell, the chairman of the Federal Reserve. These factors collectively contributed to a notable strengthening of the dollar in the financial markets.
On Monday, the pound experienced a significant 0.88% decrease in its exchange rate against the dollar, reaching a value of $1.2526. This decline was predominantly driven by the unexpected strength observed in the US employment report, coupled with statements from Jerome Powell suggesting the potential for rapid interest rate cuts in the United States.
The employment data released on the preceding Friday in the United States revealed a substantial surge in job creation during January, surpassing initial expectations. The report also highlighted a robust growth in wages.
These encouraging figures prompted investors to reassess their expectations regarding the monetary policy of the Federal Reserve, with a particular focus on the anticipation of interest rate cuts in March.
Consequently, both bond yields and the value of the dollar experienced a noticeable uptick. This trend was further reinforced by Powell's remarks in an interview published on the subsequent Sunday (originally recorded on Thursday), wherein he indicated the Federal Reserve's intention to delay any potential interest rate cuts.
The unfolding scenario led to a significant rise in the dollar index, a metric gauging the dollar's value against a basket of major currencies, including the British pound. The index reached its highest level since November 17, peaking at 104.43.
Jane Foley, a representative from Rabobank, observed that the market is adjusting its expectations, anticipating later interest rate cuts by the Federal Reserve. Consequently, she suggested that the pound is likely to hover around the $1.26 mark.
Foley further predicted a potential increase in the value of the pound when the Federal Reserve initiates interest rate cuts. According to Rabobank's projections, this could potentially occur as early as June. Simultaneously, she indicated that the Bank of England might delay a similar move until September.
Meanwhile, the latest economic data from the United Kingdom revealed a lower unemployment rate than previously estimated, standing at 3.9% instead of the anticipated 4.2%.
Additionally, surveys indicated a robust start to the year 2024 for British service firms, marked by a significant influx of new orders and the fastest pace of employment growth in six months.
In terms of technical analysis, Scotiabank analysts pointed out a negative outlook for the GBP/USD pair. They highlighted the risk of the pound regressing back to the 1.2500/1.2525 range, with resistance identified around 1.2600.
05.02.2024
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