Pound Sterling Rallies on UK Election Results, US Dollar Weakens Ahead of NFP

The Pound Sterling (GBP) demonstrated impressive strength against major currencies, except the Japanese Yen (JPY), on Friday, as investors responded positively to the Labour Party’s decisive victory in the UK parliamentary elections. The GBP/USD pair reached a fresh three-week high, nearing 1.2780, amid broad US Dollar (USD) weakness fueled by growing expectations of Fed rate cuts.

Market Drivers: UK Election Results and Fed Rate Cut Bets

  • Labour Party’s Victory Boosts Sterling: The Labour Party’s landslide win in the UK elections has instilled confidence in the market, with investors anticipating a stable government and potential pro-growth policies. This has led to increased demand for the Pound Sterling.
  • Fed Rate Cut Expectations Intensify: Softer-than-expected US economic data, including declining inflation and weaker private payrolls, has further solidified market expectations of Fed rate cuts in September. The CME FedWatch tool now indicates a 74.4% probability of a rate cut.

US NFP Data and BoE’s Policy Stance in Focus

  • US Nonfarm Payrolls (NFP) Data: Friday’s release of the June NFP report will be a key event for the USD, as it will provide crucial insights into the health of the US labor market. A weaker-than-expected report could further solidify expectations of Fed rate cuts, while a stronger-than-expected report could challenge this narrative.
  • BoE’s Focus on Inflation: The Bank of England (BoE) is expected to maintain its cautious stance on interest rates despite the recent decline in headline inflation to the 2% target. Persistent service sector inflation remains a concern, and the BoE will likely monitor upcoming UK GDP and factory data for further clues on its policy path.

Technical Analysis: GBP/USD Surges Above Key Fibonacci Level

The GBP/USD pair has broken above the 61.8% Fibonacci retracement level at 1.2670 and the 20-day and 50-day Exponential Moving Averages (EMAs). This suggests a bullish near-term outlook, with potential for further upside towards the 1.2800 level. The 14-day Relative Strength Index (RSI) rising above 60.00 further confirms the strengthening bullish momentum.