Pound Sterling jumps to near 1.3200 as US private payrolls growth slows

• The Pound Sterling gains against the US Dollar on lower US job vacancies and a slowdown in private employment growth.
• US ISM Services PMI expanded at a faster pace unexpectedly in August.
• Investors see the BoE leaving interest rates unchanged at 5% at this month’s meeting.

The Pound Sterling (GBP) surges to near 1.3180 against the US Dollar (USD) in Thursday’s North American session. The GBP/USD pair extends Wednesday’s recovery as weak United States (US) ADP Employment Change data for August adds to evidence that labor market conditions deteriorate further. An unexpected decline in the private payrolls data also sent the US Dollar (USD) on the back foot.

The agency reported that private employers hired 99K job-seekers in August, while investors projected higher payrolls at 145K from July's reading of 111K, downwardly revised from 122K. Signs of a slowing job market supported expectations that the Federal Reserve (Fed) could start the policy-easing process aggressively.

According to the CME FedWatch tool, the possibility for the Fed to begin reducing interest rates by 50 basis points (bps) to 4.75%-5.00% in the September meeting has increased to 47% from the 34% recorded a week ago.

Going forward, the US Nonfarm Payrolls (NFP) data for August, which will be published on Friday, will be the major trigger for the US Dollar. The importance of the US labor market data has increased significantly as the Fed appears to be more concerned about preventing job losses as there is increasing evidence that inflationary pressures remain on track to sustainably return to the bank’s target of 2%.

However, the US Dollar has found interim support after a downside move as the US ISM Services Purchasing Managers’ Index (PMI) for August surprisingly came in stronger than the former release. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, finds support near 101.00 after a sharp downside move. The ISM agency reported that activity in the services sector expanded at a slightly faster pace to 51.5 from July's reading of 51.4. Economists projected the Services PMI to have grown at a slower pace to 51.1

Daily digest market movers: Pound Sterling outperforms US Dollar

• The Pound Sterling performs strongly against its major peers on Thursday. The British currency strengthens as the upbeat United Kingdom (UK) economic outlook has boosted market expectations that the Bank of England’s (BoE) policy-easing cycle could be shallower this year compared to that of other central banks.
• The final estimate for S&P Global/CIPS PMI data released on Wednesday showed that overall economic activity in the UK expanded at a faster pace in August. The survey data showed that activity rose at the fastest pace since April, driven by a sharp expansion in manufacturing as well as the services sector.
• Financial market participants expect that the BoE will cut interest rates only once in the remainder of the year. The BoE pivoted to policy normalization in August. The central bank is expected to leave interest rates unchanged at 5% this month, and markets expect another cut in November or December.
• The Pound Sterling will be influenced by market sentiment and speculation for BoE interest rate cuts amid an absence of UK top-tier economic data. Next week, investors will focus on the Employment data for the quarter ending July and the monthly Gross Domestic Product (GDP) data for July.

Technical Analysis: Pound Sterling aims to recapture 1.3200

The Pound Sterling bounces back to near 1.3180 from a fresh weekly low of around 1.3090 against the US Dollar. The GBP/USD pair strengthens after discovering strong buying interest near the breakout region of an upward-sloping trendline plotted from December 28, 2023 high of 1.2828 on the daily time frame.

Upward-sloping short-to-long-term Exponential Moving Averages (EMAs) suggest a strong bullish trend. 

The 14-day Relative Strength Index (RSI) rebounds from 60.00, suggesting a resumption in the bullish momentum.

Looking up, the Cable will face resistance near the psychological level of 1.3500 and at the February 4, 2022, high of 1.3640 if it breaks above a fresh two-and-a-half-year high of 1.3266. On the downside, the psychological level of 1.3000 emerges as crucial support for the Pound Sterling bulls.