Expectations of a Fed rate cut continue to undermine the US dollar | 02 September 2024

GBPUSD:

The GBP/USD pair demonstrated a period of consolidation around 1.3135, marking the end of a three-day losing streak in the early Asian session on Monday. In the absence of significant economic data releases from the UK this week, the dollar price dynamics of the GBP/USD will be a key factor. The US Non-Farm Payrolls (NFP) data for August, due for release on Friday, will be a key focus for many.

The prospect of a reduction in interest rates by the US Federal Reserve (Fed) continues to exert a downward pressure on the dollar. In a statement released last week, Fed Chairman Jerome Powell indicated that a reduction in interest rates was likely, citing challenges in the labour market. CME's FedWatch tool indicates that there is now a 70% probability of a 25-basis point (bps) reduction in the Federal Reserve's benchmark interest rate in September, with the likelihood of a 50-bps cut standing at 30%.

The release of key US jobs data on Friday will provide insight into the potential for the US dollar (USD) to sustain its recovery. Analysts anticipate that the US economy will have added 163,000 jobs in August, with the unemployment rate projected to have declined to 4.2%. Analysts anticipate that average hourly earnings will have increased by 0.3% in July compared to the previous month. Should the results be weaker than anticipated, there is a risk of heightened concerns about a potential slowdown in the US economy, which could lead to a decline in the value of the dollar. Conversely, investors are becoming increasingly confident that the Bank of England's (BoE) policy easing cycle will be gradual for the remainder of the year, which could provide a boost to the value of the pound sterling (GBP). According to a Reuters poll, economists anticipate that the Bank of England will implement another 25 basis point (bps) rate cut this year.

Trading recommendation: Trading predominantly Buy orders from the current price level.

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