Sterling firms against softer dollar as markets await key U.S. jobs data

The British pound edged higher against the U.S. dollar on Thursday, as the greenback softened broadly ahead of the release of key U.S. non-farm payrolls data. Traders are positioning cautiously, with the dollar index retreating from recent highs amid growing expectations that the Federal Reserve may slow the pace of interest rate hikes.

Pound gains ground as dollar loses momentum

Sterling rose to around $1.2670 in early European trading, recovering from a modest decline earlier in the week. The move was driven primarily by a weaker dollar rather than fresh bullish catalysts for the UK economy. Market participants are now focused on Friday’s U.S. jobs report, which is expected to show a slowdown in hiring for March.

Economists polled by Reuters forecast that the U.S. economy added 240,000 jobs in March, down from 311,000 in February. A weaker-than-expected reading could reinforce the view that the Federal Reserve is nearing the end of its tightening cycle, which would likely put further downward pressure on the dollar.

Broader market context

The dollar has been under pressure this week following weaker-than-expected U.S. manufacturing data and a dip in consumer confidence. The ICE U.S. Dollar Index, which measures the greenback against a basket of major currencies, fell 0.3% on Thursday, extending its decline from the previous session.

For the pound, the outlook remains mixed. While the Bank of England has also raised rates aggressively to combat inflation, concerns about the UK’s economic growth prospects have limited sterling’s upside. Recent data showed that UK GDP stagnated in January, and the services sector expanded at a slower pace in February.

What the U.S. jobs data means for traders

The non-farm payrolls report is one of the most closely watched indicators for currency markets. A strong reading could revive dollar buying, while a weak number may accelerate the dollar’s decline. For sterling traders, the key question is whether the pound can hold above the $1.26 level if the data disappoints.

Analysts at ING noted that sterling is likely to remain range-bound against the dollar until clearer signals emerge on the path of interest rates in both the U.S. and the UK. They added that a break above $1.27 could open the door for further gains, but resistance is expected around $1.2750.

Conclusion

The pound’s firmness against the dollar reflects a broader shift in market sentiment ahead of the U.S. jobs data. While the near-term direction will depend on the payrolls report, the underlying trend for sterling remains tied to the relative pace of monetary policy between the Bank of England and the Federal Reserve. Traders should watch for volatility on Friday as the data is released.

FAQs

Q1: Why is the dollar softening ahead of the U.S. jobs data?
The dollar has softened as markets anticipate a slowdown in hiring, which could reduce the pressure on the Federal Reserve to keep raising interest rates. Weaker-than-expected economic data earlier this week also weighed on the greenback.

Q2: How does the U.S. jobs report affect the pound?
The U.S. jobs report influences the dollar’s value, which in turn affects GBP/USD. A weak jobs report typically weakens the dollar, boosting sterling, while a strong report can strengthen the dollar and push the pound lower.

Q3: What is the outlook for sterling this quarter?
The outlook for sterling remains uncertain. While higher UK interest rates provide some support, sluggish economic growth and ongoing inflation concerns cap gains. The pound is likely to remain sensitive to data releases and central bank commentary from both the UK and the U.S.