- The Pound Sterling trades firmly near 1.2900 against the US Dollar as investors see US President Trump tariffs less fearful.
- Trump is poised to provide a one-month exemption for tariffs on automobiles from Canada and Mexico.
- BoE officials have guided a gradual policy-easing approach.
The Pound Sterling (GBP) trades cautiously against its peers on Thursday despite Bank of England (BoE) officials reiterating a “gradual and cautious” policy easing approach while testifying before Parliament’s treasury department on Wednesday.
BoE Monetary Policy Committee (MPC) member Megan Greene advocated for a “gradual path” for “removing monetary policy restrictiveness” as the inflation persistence is less likely to fade on its own accord. BoE Chief Economist Huw Pill argued that there is more work to do to “squeeze out” underlying inflation.
BoE Governor Andrew Bailey said more about the consequences of US President Donald Trump-led trade war on the global economy. However, he warned that the hike in employers’ contribution to National Insurance (NI) announced by Chancellor of the Exchequer Rachel Reeves in the Autumn Budget will increase job costs by 2%, lifting inflation by 0.1%-0.2%.
Meanwhile, traders have fully priced in two more 25 basis points (bps) interest rate cuts by the BoE this year. The BoE also reduced its key borrowing rates by quarter-to-a-percent in the February policy meeting to 4.5%.
Daily digest market movers: Pound Sterling remains firm against US Dollar as investors see Trump tariffs less fearful
- The Pound Sterling clings to gains near 1.2900 against the US Dollar (USD) in European trading hours on Thursday. The GBP/USD pair exhibits strength as the risk premium of the US Dollar has diminished significantly, with investors expecting the United States (US) President Donald Trump’s tariff agenda to be less fearful than what they had projected earlier.
- Markets currently see Trump’s tariffs more as a tactic to have a dominant position while negotiating deals with US trading partners. On Wednesday, White House Press Secretary Karoline Leavitt said that the US President will exempt automobiles from 25% tariffs imported from Canada and Mexico for a month, which he imposed on Tuesday.
- “We spoke with the big three auto dealers and are going to give a one-month exemption on any autos coming through USMCA,” Leavitt said and added, “Trump is open to hearing about additional tariff exemptions.” Also, the US President is considering providing the exemption on some agricultural products too, Agriculture Secretary Brooke Rollins told Bloomberg.
- Going forward, the US Dollar will be influenced by the US Nonfarm Payrolls (NFP) data for February, which will be released this Friday. The labor market data will influence market speculation about the Federal Reserve’s (Fed) monetary policy outlook. Investors expect the economy to have added 160K jobs, higher than 143K in January. However, the US ADP reported on Wednesday that the private sector added 77K fresh workers in February, significantly lower than estimates of 140K and the former release of 186K.
Technical Analysis: Pound Sterling holds onto gains around 61.8% Fibo retracement
The Pound Sterling rises to the 61.8% Fibonacci retracement plotted from the late September high to mid-January low and tops near 1.2930 on Thursday. The long-term outlook of the GBP/USD pair has turned bullish as it holds above the 200-day Exponential Moving Average (EMA), which is around 1.2680.
The 14-day Relative Strength Index (RSI) climbs above 60.00, suggesting a strong bullish momentum.
Looking down, the 50% Fibo retracement at 1.2767 and the 38.2% Fibo retracement at 1.2608 will act as key support zones for the pair. On the upside, the psychological 1.3000 level will act as a key resistance zone.
Economic Indicator
Nonfarm Payrolls
The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months’ reviews and the Unemployment Rate are as relevant as the headline figure. The market’s reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.
America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.
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