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Pound Edges Higher as Dollar's Rebound Stalls Ahead of Key US Jobs Data
The British pound edged higher against the U.S. dollar on Tuesday, while the euro held steady, as a recent dollar rally lost steam ahead of crucial U.S. labor market data. Investors are closely watching upcoming employment reports for fresh clues on the Federal Reserve's potential path for interest rate cuts.
As of 4:50 AM ET, the GBP/USD currency pair was up 0.07% to 1.3440, while the EUR/USD was nearly flat at 1.1509. The dollar's recent strength was underpinned by stronger-than-expected U.S. manufacturing data and easing concerns about Japanese yen intervention, but that momentum has faded as markets await a new catalyst.
Spotlight on US Labor Market
The market's primary focus has shifted to the U.S. labor market, with several key economic releases scheduled this week that could influence Fed policy. The releases include JOLTS job openings on Tuesday, the ADP private employment report on Wednesday, and the pivotal Non-Farm Payrolls (NFP) report on Friday.
Market consensus for Friday's NFP report is for the creation of 80,000 new jobs. Currently, futures markets are pricing in an approximately 65% probability of a Fed rate cut in September. According to the source, neither the recent manufacturing figures nor the current jobs forecast are considered weak enough to trigger a significant new wave of dollar selling.
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Analysts at ING attribute the dollar's stabilization to a confluence of factors, including a normalization of speculative positioning. According to strategist Francesco Pesole, speculative net-long dollar positions recently hit their most overbought levels since May 2019 before experiencing a subsequent unwinding.
"A stronger macro fundamental support is needed for the dollar to weaken further," Pesole noted. ING's short-term models suggest the EUR/USD pair is slightly overvalued and could fall back below the 1.150 level this week if the dollar finds renewed support.
ING maintains a mildly bullish outlook on the dollar leading up to Friday's data. However, a significantly weaker-than-expected NFP reading could quickly revive expectations for more aggressive Federal Reserve easing, placing renewed downward pressure on the U.S. currency.
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