The pound was met by notable volatility on Thursday as the Bank of England (BoE) cut interest rates for the first time since 2020.
Sterling is nursing its wounds so far this morning, with GBP/EUR muted at €1.1792 and GBP/USD stable at $1.2736. GBP/CAD is subdued at CA$1.7650, while GBP/AUD and GBP/NZD retreat to AU$1.9519 and NZ$2.1370, respectively.
Coming up, this afternoon will see the publication of the latest US non farm payroll report. Will signs of a slowing US labour market pull the US dollar lower?
What’s been happening?
Trade in the pound was highly erratic during yesterday’s session. Caution ahead of the Bank of England’s latest interest rate decision initially weakened Sterling, with GBP/USD striking a three-week low in the process.
The BoE ultimately opted for its first rate cut since the start of the Coronavirus pandemic, with interest rates falling by 25bps to 5%.
However, the pound was able to claw back a portion of these losses in the wake of the decision. A narrow vote in favour of the cut, as well as some hawkish comments from BoE Governor Andrew Bailey, signalled the bank may take some time before loosening its monetary policy further.
In contrast, the US dollar strengthened on Thursday, with the ‘greenback’ recouping some of the losses seen in response to the Federal Reserve’s own rate decision earlier in the week.
The upside in the US dollar was supported by risk-off flows in the wake of some disappointing Chinese manufacturing data earlier in the session.
At the same time, the euro struggled during yesterday’s session as it was undermined by its negative correlation with the US dollar in addition to a shock rise in Eurozone unemployment.
What’s coming up?
Looking ahead, the spotlight today will be on the latest US non farm payroll report.
The high-impact data is forecast to report the US economy added 175,000 jobs in July, versus the 206,000 added in June.
Will signs of a slowing US labour market stoke Fed rate cut bets and pull the US dollar lower this afternoon?
A speech by BoE Chief Economist Huw Pill will be in focus for GBP investors today. Pill was one of the monetary policy committee members to vote to leave interest rates on hold this month. Could a hawkish outlook offer support to the pound?
Finally, in the absence of any notable Eurozone data, will the euro be left to trade sideways today?
