The GBP/USD pair advances modestly to around 1.3435 during Friday’s Asian session, supported by weakness in the US Dollar (USD). The Greenback comes under pressure as signs of a slowing US labor market emerge and the federal government enters a shutdown. Notably, the September Nonfarm Payrolls (NFP) report will not be released due to the shutdown, though the ISM Services PMI and final S&P Global Services PMI remain on schedule for later in the day.
Expectations of a softer US job market reinforce the case for additional Federal Reserve (Fed) rate cuts this year. The CME FedWatch tool shows markets have nearly fully priced in a 25 basis point cut at the upcoming policy meeting, which would bring rates to the 3.75%–4.00% range.
Meanwhile, the political standoff over government funding looks set to drag on. Senate Democrats are likely to block the GOP-backed short-term funding bill again in tomorrow’s vote, with no weekend session planned. Uncertainty surrounding the shutdown adds further downside pressure on the USD and lends support to the major pair.
On the UK side, Bank of England (BoE) officials continue to deliver mixed policy signals. Deputy Governor Sarah Breeden warned of risks tied to “higher for longer” rates, suggesting that the recent uptick in headline inflation may not persist and cautioning about potential damage from prolonged tight policy. Earlier this week, Deputy Governor Clare Lombardelli stressed the need for caution in assuming inflation shocks are only temporary. These conflicting messages could limit the Pound’s upside and cap further gains against the Dollar.
