Last week, I predicted that we should expect another period of high volatility following the extended strength of the Sterling against both the USD and EUR. After several weeks of gains, it was inevitable that the Pound would eventually lose some of the ground it had made and settle at a more reasonable level. The question now is whether that correction will happen this week.
Cable ended last week at levels not seen in years, and with the majority of this week’s data coming from the U.S., it seemed likely that American releases would drive market movements. However, the most significant volatility was triggered by an interview with Bank of England Governor Andrew Bailey in The Guardian. In the interview, Bailey suggested that, under the right conditions, the Bank of England could adopt a more aggressive stance on rate cuts. This dovish shift led to a broad sell-off of the Pound, causing GBP/USD to reach its lowest levels since mid-September.
Data releases this week have been relatively quiet. The major announcement today is the U.S. Non-Farm Payrolls (NFP) data, which will be released at 1:30 p.m. GMT. Earlier in the week, we saw U.S. job data releases, beginning with Tuesday’s JOLTS Job Openings. Forecasts expected a slight decrease from 7.71 million to 7.64 million, but the actual figure came in at 8.04 million, significantly exceeding expectations. This, coupled with disappointing ISM Manufacturing PMI data from the U.S., initiated the downward trend in Cable that persisted throughout the week.
On Wednesday, the U.S. released ADP Non-Farm Employment Change data. Forecasts anticipated a rise to 124,000 from the previous month’s poor reading of 103,000, but the actual figure again outperformed expectations, coming in at 143,000, which further strengthened the USD.
Thursday was dominated by Bailey’s dovish remarks, though the U.S. posted a couple of encouraging results, including another strong ISM Services PMI reading and slightly better-than-expected Unemployment Claims figures. Markets now await the NFP release this afternoon, with significant market swings possible.
Looking ahead to next week, all eyes will be on the release of the FOMC minutes and U.S. CPI data. The Pound remains at risk of losing further ground. It’s worth noting that a sustained strong Pound could lead to lower prices and, in turn, drive inflation higher. This could create a self-reinforcing cycle of Pound appreciation, something the Bank of England will surely be mindful of before cutting rates too aggressively.
