GBP/USD FIRM ABOVE 1.2500 AMID HAWKISH BOE COMMENTS, UK JOBS DATA EYED

BoE MPC member Catherine Mann suggests it’s too soon to end the tightening cycle.

Upcoming UK employment report and US inflation data could be key drivers for the pair.

BoJ Governor Kazuo Ueda’s hawkish comments also influence the market sentiment.

The Pound Sterling (GBP) posts modest gains versus the US Dollar (USD) late on Monday’s North American session after seesawing in an 80-pip range, though it stays afloat above the 1.2500 figure. The GBP/USD is trading at 1.2510, gains 0.37%.

Pound gains modestly against the US Dollar, buoyed by improved market sentiment and comments from BoE's Catherine Mann

The GBP/USD recovered some ground amidst an improvement in market sentiment spurred by upbeat economic data from China and hawkish comments by the Bank of Japan (BoJ) Governor Kazuo Ueda. Ueda stated the BoJ would look to end its ultra-loose monetary policy quietly and added the BoJ would end the period of negative rates if there’s a shift in data.

In the meantime, the Bank of England (BoE) MPC member Catherine Mann stressed that it’s too soon for the BoE to end its tightening cycle and added that she “would rather err on the side of over-tightening” than the opposite. Mann said she wouldn’t hesitate to cut rates if the BoE overshoots.

Interest rate probabilities show the BoE’s chances for a 25 bps rate hike at 79%, ten days before Andrew Bailey and Co. release their decision. Following their decision in September, money market futures expect no more rate increases compared to last week’s projections, with swaps pricing in 20 bps of increases for March 2024.

Although it should be positive for the GBP/USD exchange rate, the August UK employment report on Tuesday could shift the pair’s direction. The projections foresee a mixed report, with the labor market expected to contract by -80Kj obs, while the Unemployment rate would tick higher.

Recently, a New York Fed Poll showed that Americans are seeing inflation a year from now at 3.6%., up from July 3.5%, while forecasts for three years dropped to 2.8% vs. 2.9% on the previous poll. The same survey indicated that households struggle to access credit, and predicted it would be more challenging in the months ahead. Given that backdrop, it could be a prelude to retail sales, which would be revealed late in the week.

On the US front, the US economic agenda would feature inflation data, which is expected to climb above July’s numbers, except for the core Consumer Price Index (CPI), at 4.3% YoY, down from 4.7%. Any upward surprises in the data could trigger a reaction by the US Federal Reserve, which is expected to keep rates on hold for the September meeting