Pound Sterling Outlook: GBP/USD Braced for US Jobs Data

December 6, 2024 - Written by Frank Davies

STORY LINK Pound Sterling Outlook: GBP/USD Braced for US Jobs Data

Pound sentiment is relatively cautious with doubts over the near-term economic outlook, but reservations elsewhere, including weaker than expected US data has protected the Pound.

Friday’s US jobs data is likely to be pivotal for near-term direction.

The Euro remains broadly on the defensive due to political and economic concerns while the dollar is also being hampered by seasonal factors.

The Pound to Dollar (GBP/USD) exchange rate has secured a net gain to 1.2725

Danske Bank commented; “We think a gradual easing is warranted by the BoE for now, but expect a step up in easing pace in the spring. We stay long GBP/USD as a tactical recommendation.”

The bank sees scope for GBP/USD to strengthen to 1.33 on a 1-3month view.

As far as data is concerned, the UK PMI construction-sector PMI index strengthened to 55.2 for November from 54.3 previously and above consensus forecasts of 53.5, although the underlying components were less favourable.

Tim Moore, Economics Director at S&P Global Market Intelligence, commented; “The degree of positive sentiment regarding year-ahead growth prospects dropped to the lowest since October 2023. Many construction companies cited concerns about the near-term UK economic outlook and subsequent cutbacks to new projects."

As far as the US is concerned, markets are still pricing in over a 75% chance that the Fed will cut rates by 25 basis points at the December policy meeting.

In comments on Wednesday, Chair Powell commented; “The U.S. economy is in very good shape and there’s no reason for that not to continue, growth is definitely stronger than we thought, and inflation has come in a little higher."

On rates he added; "So the good news is that we can afford to be a little more cautious as we try to find neutral.”

San Francisco Fed President Daly added; “There’s no sense of urgency.”

The comments suggest that a December rate cut is likely, but recent rhetoric indicates that there is a possible get-out clause if the US data is very strong.

Wednesday’s data was relatively subdued and did not suggest a barrier to a rate cut.

Friday’s key employment data could still prove to be pivotal for the outlook.

Consensus forecasts are for an increase in non-farm payrolls of around 220,000 from 12,000 previously as employment bounces back from weather and strike-related losses for October.

The unemployment rate is expected to remain at 4.1%.

Subdued data would reinforce expectations of a rate cut while a much stronger than expected report would trigger fresh doubts over a December cut.

The more likely outcome is that the central bank will signal a potential pause is likely early in 2025.

MUFG commented; “We believe that a significant upside surprise will be required to prompt the Fed to skip cutting rates again this month.”

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TAGS: Pound Dollar Forecasts