Market Analysis

GBP Poised for Fourth Consecutive Weekly Gain Ahead of US Payrolls

Amos Simanungkalit · 07 Jun14.6K Views

The British pound was poised for its fourth consecutive weekly gain against the U.S. dollar on Friday, marking its longest winning streak since March last year. Investors awaited U.S. labor market data that could influence expectations around U.S. interest rates.

Sterling held steady at $1.2789 as of 0915 GMT. For the week, it is set to rise by 0.4%, reaching its highest levels since March, largely driven by dollar weakness rather than inherent pound strength.

Against the euro, sterling has shown more modest gains recently, remaining largely unchanged after the European Central Bank announced its first rate cut in five years.

Despite recent movements, the pound remains close to its strongest levels against the euro since October 2023, driven by expectations that the Bank of England will hold off on rate cuts until later this year.

Market indicators suggest UK rates could drop to about 4.82% by December, down from the current 5.25%, while the ECB's rates, currently at 3.75%, are expected to decrease further by year-end.

Friday's focus was on U.S. non-farm payrolls data, with economists expecting a rise of 185,000 jobs in May. Traders are pricing in two quarter-point rate cuts by the Federal Reserve this year, starting with the first likely in September.

The likelihood of two rate cuts in the UK this year is slimmer, given that metrics like wage growth and service-sector price pressures remain above the Bank of England's comfort zone, despite a significant slowdown in headline inflation.

Next week's UK economic growth and employment data will provide further insight into the BoE's future decisions amid challenges such as adverse weather impacting consumer spending and broader economic activity.

Santander UK economist Gabriella Willis noted concerns about underlying demand weakness, suggesting that moderate growth could suit the BoE's current stance, providing time to assess without immediate pressure for rate cuts or inflationary pressures.