GBP/USD Rises, But US Dollar Remains Strong
The pound sterling strengthened modestly against the US dollar on Wednesday (July 1), although the greenback received support from comments from Federal Reserve Chairman Kevin Warsh. GBP/USD rose around 0.14% and hovered around 1.3277 after briefly dropping to a daily low of 1.3219.
At the European Central Bank's annual forum in Sintra, Portugal, Warsh emphasized that the Fed would not provide forward guidance on the next direction in interest rates. He stated that inflation remained too high, the labor market remained stable, and the US central bank would remain focused on bringing inflation back to its 2% target.
Warsh's comments kept the US dollar relatively strong. The US dollar index (DXY) hovered around 101.34, up 0.17%. However, the market reaction was modest as investors had already factored in the Fed's more cautious and data-driven stance.
US economic data provided mixed signals. ADP Employment Change showed the private sector added only 98,000 jobs in June, lower than the 113,000 expected and down from 122,000 in May. This figure suggests job creation momentum is slowing.
However, Challenger Job Cuts data showed the number of planned layoffs fell 53% in June to 45,849 from 97,006 previously. This decline in layoffs signals that the US labor market has not weakened sharply, although the pace of hiring has begun to moderate.
In the UK, investors are also closely monitoring political dynamics after Keir Starmer announced his resignation as Prime Minister. Andy Burnham, his expected successor, sought to calm markets by asserting that he would continue to adhere to the fiscal rules set by Chancellor Rachel Reeves.
Burnham's commitment to fiscal discipline is important for the market because it helps ease concerns about the risk of a widening deficit and pressure on UK bonds. This stance has kept the pound supported, despite lingering political uncertainty. On the monetary policy side, expectations of a Bank of England interest rate hike have begun to ease after the US-Iran deal pushed down oil prices. Lower energy prices could help ease the inflation outlook, giving the BoE some room to delay further rate hikes.
However, the swap market still expects at least one BoE rate hike in 2026. This suggests that investors are not yet fully convinced that UK inflation will fall sustainably, especially if energy prices rise again or wage pressures remain strong.
Overall, the pound's gains on Wednesday appeared limited. GBP/USD gained support from UK political stabilization and less-than-stellar US data, but further gains were limited by the US dollar, which remains supported by the Fed's hawkish stance.
Looking ahead, market focus will be on US Nonfarm Payrolls data, the direction of UK inflation, and developments in the leadership transition in London. If US labor data weakens, the pound has the potential to extend its gains. However, if US data strengthens again, the dollar could recover and push GBP/USD back to the downside. (arl)
Source: Newsmaker.id
