Pound Sterling steadies against US Dollar ahead of key US economic releases
- The Pound Sterling trades flat against the US Dollar ahead of key US employment and Services PMI data.
- This week, the notable release will be the US NFP data, which is scheduled for Friday.
- Investors expect the BoE to maintain a monetary easing approach amid weak job market conditions.
The Pound Sterling (GBP) trades flat near 1.3500 against the US Dollar (USD) during the European trading session on Wednesday. The GBP/USD steadies as the US Dollar trades cautiously ahead of an array of United States (US) economic data, including ADP Employment Change and ISM Services Purchasing Managers’ Index (PMI) data for December, and the JOLTS Job Openings data for November, releasing in the North American session.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades subduedly near 98.55.
Investors will closely monitor US employment-related data to get fresh cues on the Federal Reserve’s (Fed) monetary policy outlook.
Economists expect the US ADP to show that private employers added 45K fresh workers after firing 32K in November. Meanwhile, new job postings by overall employers, as measured by the JOLTS Job Opening, are expected to come in at 7.64 million, almost in line with October’s reading of 7.67 million.
Signs of improving US job market conditions would weigh on expectations towards more interest rate cuts by the Fed in the near term. On the contrary, soft numbers would prompt them.
The US ISM Services PMI is expected to come in lower at 52.3 from 52.6 in November, indicating that the service business activity continued to expand, but at a moderate pace.
Daily digest market movers: Pound Sterling trades calmly as investors digest Venezuela-linked market jitters
- The Pound Sterling trades broadly stable against its major currency peers during European trading hours. The British currency remains steady while investors brushed off market jitters driven by the US military action in Venezuela during the weekend.
- Earlier this week, market sentiment turned risk-averse after the US attacked Venezuela and captured its President, Nicolas Maduro, over drug-trafficking charges.
- Domestically, the United Kingdom (UK) economic calendar is light; therefore, market sentiment will remain the key driver for the Pound Sterling.
- On the monetary policy front, the Bank of England (BoE) is unexpected to ease monetary conditions aggressively this year as inflation is well above the central bank’s 2% target. However, the monetary policy path will remain downwards as labor market conditions are weak. In the three months ending October, the UK Unemployment Rate jumped to 5.1%, the highest level seen since March 2021.
- This week, the notable event for the GBP/USD pair will be the Nonfarm Payrolls (NFP) data for December, which will be released on Friday. Investors will pay close attention to the US official employment data to get fresh cues on the current state of the labor market. In 2025, the Fed delivered three interest rate cuts of 25 basis points (bps) and pushed them lower to the 3.50%-3.75% range due to weak job market conditions.
Technical Analysis: GBP/USD holds key 20-day EMA
GBP/USD trades at 1.3495 at the time of writing. The 20-day Exponential Moving Average (EMA) rises and sits at 1.3445, underpinning the immediate bullish bias. Price holds above the 20-day EMA, keeping the short-term uptrend intact.
The 14-day Relative Strength Index (RSI) at 60 (neutral-to-bullish) confirms firm momentum without overbought conditions.
Measured from the 1.3791 high to the 1.3017 low, Fibonacci retracements could signal interesting support and resistance zones. The 61.8% Fibonacci retracement at 1.3495 acts as an immediate support. A decisive close above it could open the way toward the 78.6% Fibonacci retracement at 1.3625. On the contrary, a failure to hold 1.3495 would leave scope for consolidation, with the rising EMA at 1.3445 providing a near-term floor.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.