The British Pound experienced a decline as the US Dollar strengthened in anticipation of significant ISM Services PMI data. Weak September Nonfarm Payrolls have diminished expectations for an October Federal Reserve interest rate hike to 77.9%. Officials at the Bank of England have suggested the possibility of future rate increases in response to ongoing inflation pressures, largely attributed to energy prices. GBP/USD experiences a slight decline following a day of modest gains, currently trading near 1.3240 during the Asian session on Monday. The currency pair is experiencing downward pressure as the US Dollar gains strength in anticipation of the forthcoming US ISM Services Purchasing Managers Index release. However, market participants have reduced their expectations for a forthcoming interest rate hike by the Federal Reserve, influenced by recent weakness in US employment data. Financial markets currently assign a probability of approximately 77.9% that the Fed will maintain benchmark rates at their current levels during the October policy meeting, an increase from the 74% observed prior to the jobs report.
The shift in market sentiment follows a surprisingly weak labour market performance, with US Nonfarm Payrolls increasing by just 29,000 in September. This figure significantly missed consensus forecasts of 90,000 and represents a sharp deceleration from August’s downwardly revised gain of 133,000. Additionally, the US unemployment rate increased to 4.2%, even as the labour force participation rate saw a slight expansion to 61.8%. On the United Kingdom side, investors are currently factoring in approximately 30 basis points of rate hikes by the Bank of England through the end of the year, in addition to around 90 basis points of cumulative tightening projected through 2027. Policymakers at the Bank of England, led by Governor Andrew Bailey, have signalled an increasing readiness to elevate interest rates in response to inflationary pressures intensified by high energy costs. Analysts emphasise that the growth environment in the UK has shown signs of improvement, pointing out that staff at the Bank of England have revised their forecasts for the ongoing quarter.
In line with this, MUFG/BTMU report that they have “raised their forecast for growth in Q3 to 0.4% up from their previous projection of 0.1% set back in July,” reinforcing the view that resilient domestic activity could help support the Pound even as it trades near year-to-date lows against the Dollar. In the daily chart, GBP/USD is positioned around 1.3240, exhibiting a bearish near-term sentiment as the price remains below both the nine-period Exponential Moving Averages. The pair’s position beneath these critical averages indicates that any rallies may face limitations, while the 14-day Relative Strength Index hovering around 35 suggests persistent downside pressure rather than a straightforward oversold scenario. On the topside, immediate resistance is concentrated at the short-term nine-period EMA near 1.3259, with a more substantial barrier at the 50-period EMA around 1.3399, which reinforces the overarching bearish structure.
In the absence of definitive technical support indicated by the available metrics, any additional decline would prompt traders to monitor for new horizontal support levels emerging from recent lows. Conversely, a daily close exceeding 1.3259 would signal the initial indication that selling pressure may be diminishing. Fed’s Logan speech scores 9.2/10 on the FXS Speechtracker, indicating a notable hawkish surprise compared to the historical average of 8.1/10. The speech underscored that policy remains insufficiently restrictive and must be characterised as “modestly tight.” The key remark that higher yields may reflect rising term premiums and thus reduce the need for additional tightening is overshadowed by explicit calls for at least 50 bps more in rate hikes and several moves to reverse last fall’s reductions, reinforcing a higher-for-longer rate narrative. Overall, the interplay of robust economic growth, a balanced labour market, and a steadfast dedication to restoring price stability suggests potential upward pressures on the Dollar as markets anticipate more assertive actions from the Federal Reserve.
