US Dollar: GBP/USD Rate Tests 4-Month Best as Markets Await US NFP

March 7, 2025 - Written by Frank Davies

STORY LINK US Dollar: GBP/USD Rate Tests 4-Month Best as Markets Await US NFP

Pound Sterling (GBP) overall has struggled on the crosses while the US Dollar (USD) has struggled amid ongoing recession fears and revised ECB guidance after the latest rate cut triggered further Euro gains.

The Pound-to-Dollar exchange rate (GBP/USD) hit 16-week highs just above 1.2920 before trading around 1.2885.

Scotiabank considers that GBPUSD has peaked for the time being but added, “Solidly bullish trend momentum on the short– and medium-term oscillators should mean firm support on dips to the 1.2775/1.2825 range.”

The Pound to Euro exchange rate (GBP/EUR) dipped to 5-week lows just below 1.1900.

According to Scotiabank, “EUR outperformance may extend towards 0.85 in the near term.” This would push GBP/EUR down to 1.1765.

The ECB cut benchmark interest rates by 25 basis points with the deposit rate lowered to 2.50%.

According to the ECB, “Monetary policy is becoming meaningfully less restrictive, as the interest rate cuts are making new borrowing less expensive for firms and households and loan growth is picking up.”

It did add that there were still headwinds, but the comment on policy being less restrictive is a signal that it will be more difficult to justify further interest rate cuts.

According to bank President Lagarde, geopolitical tensions are a major source of uncertainty. She stated that risks to growth are tilted to the downside but that defence and infrastructure spending could add to growth and raise inflation.

Lagarde added that the bank will pause rate cuts if the data suggest it.

MUFG commented, “A stronger signal over a potential skip in April could reinforce the euro’s upward momentum today alongside any tentative indication from the ECB that room for rate cuts will be curtailed by updated fiscal plans.”

US labour-market data was mixed, with initial jobless claims declining to 221,000 in the latest week from 242,000 previously, although continuing claims increased to 1.90mn from 1.86mn.

The latest data from Challenger, however, recorded a surge in job layoffs to 172,000 for February from just below 50,000 the previous month with heavy layoffs in government jobs as well as the retail and tech sectors.

Friday’s employment report will inevitably trigger a further spike in volatility.

Consensus forecasts are for an increase in non-farm payrolls of around 155,000, but markets are braced for a weaker figure any negative figure would trigger fresh market chaos.

Philadelphia Fed President Harker stated that he was more and more worried about factors that could threaten the dollar’s reserve status.

He also expressed concerns over budget deficits and that the decline in inflation pressure is at risk.

Scotiabank’s Shaun Osborne commented, “USD sentiment looks increasingly fragile as investors perceive a weakening in the “US exceptionalism” argument that has been a key pillar for the USD’s strength in recent years.”

He added; “Yield differentials are less supportive in the short run and contrasting growth prospects, driven by DOGE efforts and trade war concerns in the US versus a significant expansion of fiscal firepower in Europe, are a longer-term negative for an overvalued USD.”

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TAGS: Pound Dollar Forecasts