Pound to Dollar Forecast: GBP Above $1.37 Ahead of High Risk NFP

– Written by


Frank Davies

STORY LINK Pound to Dollar Forecast: GBP Above $1.37 Ahead of High Risk NFP

The Pound to Dollar exchange rate (GBP/USD) is trading above 1.3700 as a softer US dollar offsets lingering UK political risk, with markets turning their focus to the upcoming US non-farm payrolls report.

Sterling has drawn support from easing gilt yields and stabilising risk sentiment, but the next directional move in GBP/USD is likely to hinge on whether US labour market data reinforces or challenges expectations for Federal Reserve rate cuts.

GBP/USD Forecasts: 1.37 Breached

The Pound to Dollar (GBP/USD) exchange rate advanced to break the 1.3700 level amid a soft US dollar before settling around 1.3680.

If UK political drama stays in abeyance in the very short term, dollar trends are likely to dominate with a key jobs report on Wednesday.

According to UoB; “The advance appears to be running ahead of itself, but there is scope for GBP to test 1.3730.”

There was an element of relief that Prime Minister Starmer survived the immediate crisis on Monday. This was evident in the bond market with the 10-year yield dipping below the 4.50% level

There are, however, still serious underlying stresses surrounding Starmer’s position and potential shift in fiscal policy.

According to Scotiabank; “UK politics remain a drag for the pound and the options market continues to price a higher premium for protection against downside risk, reflecting ongoing concerns about PM Starmer’s leadership. Polymarket odds of a departure are climbing, despite Monday’s expression of support from Starmer’s cabinet ministers and potential rivals.”

US retail sales were unchanged for January after a 0.6% increase the previous month and compared with consensus forecasts of a 0.4% gain. Core sales were unchanged with a 0.1% decline in the control group.

Elsewhere, the NFIB small business confidence index edged lower to 99.3 from 99.5 previously.

Markets were inevitably cautious ahead of the latest US jobs report, especially after comments overnight from White House economic adviser Kevin Hassett that U.S. job gains could be lower in the coming months due to slower labour force growth and higher productivity.

The comments triggered some speculation that the data on Wednesday would be weaker than expected. Consensus forecasts are for an increase in non-farm payrolls of around 65,000 after a 50,000 gain the previous month with the unemployment rate holding at 4.4%.

Scotiabank commented; “the Bloomberg “whisper” number has been trimmed back a little more in response to Hassett (from around 50k to 45k), suggesting that traders are clearly taking the comment as a “heads up” that payrolls may disappoint.”

There are also still underlying reservations surrounding the US Administration’s stance towards the dollar.

ING commented; “Also noteworthy overnight were comments from the Fed’s Stephen Miran, that recent dollar weakness was not of ‘first order’ consequence for US inflation. This adds to the view that Washington is quietly pursuing a policy of benign neglect when it comes to the dollar.

Traders were also discussing the reports that China had called for funds to be cautious over the holding of US Treasuries. MUFG played down immediate fears; “Unlike for the US dollar yesterday, there was no sell-off in the US Treasury market indicating market participants are not overly concerned by the report.”

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