The GBP/USD pair is maintaining its position around 1.3490–1.3500, continuing its upward trend after five consecutive sessions of growth. Sterling’s resilience is observed amid a backdrop of widespread U.S. Dollar Index weakness, which has declined toward the 97.70–97.75 range, influenced by political gridlock in Washington and worsening labor data. The ongoing U.S. government shutdown has led to a suspension of economic releases, resulting in traders assigning a 99% likelihood to a 25-basis-point cut in Federal Reserve rates this October, which would adjust the policy rate to the 3.75%–4.00% range.
U.S. employment indicators have significantly deteriorated. The ADP private payrolls report indicated a decline of 32,000 jobs in September, marking the most significant decrease since March 2023, in contrast to the anticipated increase of 51,000 jobs. Even more concerning, August payrolls were adjusted from an increase of 54,000 to a decrease of 3,000, highlighting a significant shift in labor momentum. The year-over-year wage growth of 4.5% failed to compensate for the disappointing headline figures. Additionally, with the official NFP data postponed because of the shutdown, the ADP miss holds greater significance in influencing market expectations. The soft data is presented in conjunction with ongoing manufacturing weakness. The ISM PMI experienced a modest increase to 49.1 in September; however, it continued to indicate contraction for the seventh month in a row. The combination of a weakening labor market and ongoing industrial challenges has led markets to believe that the Fed will maintain a dovish stance, despite Treasury yields offering a protective support for the dollar.
BoE Indicates a Restrictive Stance Despite the cooling risks of inflation, the Bank of England’s communication remains supportive of Sterling. Policymaker Catherine Mann cautioned that inflation continues to exhibit persistence, despite a sequence of previous rate increases, highlighting the necessity for the BoE to avoid any premature easing of policy. Deputy Governor Clare Lombardelli emphasized the need for caution, stating that inflation shocks should not be regarded as merely temporary. The central bank has recognized the potential risk of inflation falling short of the 2% target. Currently, UK inflation is at approximately 4% as of September, exceeding the Bank of England’s comfort zone. This careful maneuver — adjusting bias without excessive measures — has provided Sterling with relative strength against the dollar, enabling GBP/USD to maintain the 1.3450–1.3500 range even amid fluctuations.
The U.S. government shutdown, resulting from lawmakers’ inability to secure funding, has halted the release of essential economic reports, leading to a “data blackout” situation. In the absence of dependable data, the Federal Reserve’s trajectory grows more ambiguous, heightening the likelihood of policy errors. Historically, instances of fiscal paralysis have led investors to seek refuge in Treasuries, thereby providing indirect support to the dollar. However, given that labor and consumption indicators are already showing weakness, the shutdown exacerbates the downside risks for the dollar instead of providing any support.