The GBP/USD pair continues its downward trend, reaching approximately 1.3060 in the Asian trading session on Tuesday. This decline marks the third consecutive day of losses for the British pound against the US dollar. The recent strengthening of the US dollar can be linked to data that raised doubts regarding the Federal Reserve’s potential for aggressive interest rate cuts during its upcoming September meeting.
Market expectations are currently leaning towards a minimum cut of 25 basis points by the Federal Reserve. However, the probability of a more substantial 50 basis point cut has dipped slightly to 29.0%, compared to 30.0% just a week prior. Recent comments from Fed officials suggest a growing alignment with market sentiments, indicating that a policy update from the central bank may be on the horizon.
Meanwhile, in the UK, the focus shifts to the upcoming labor market report for the quarter ending in July, which is due for release on Tuesday. This report is poised to play a pivotal role in shaping market perceptions regarding the Bank of England’s monetary policy for the remainder of the year. Forecasts suggest the ILO Unemployment Rate may decrease to 4.1%, down from the previous figure of 4.2%. Additionally, average earnings, including bonuses, are anticipated to slow to 4.1%, a decline from 4.5%.
A slowdown in wage growth could lead to expectations of further interest rate cuts by the Bank of England, particularly as it may indicate a reduction in inflationary pressures, particularly within the services sector. The release of this labor market data could further sway the financial markets, impacting both the GBP and broader economic outlook in the UK.
