Pound Sterling Risks Further Falls against Euro & Dollar on Firm NFP Print

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The British Pound could be on course to register a weekly loss against the Euro and Dollar if today's all-important labour market release comes out stronger than expected.

There is nothing on the domestic UK calendar of relevance for Sterling and major events like the next Bank of England interest rate decision and the government's fiscal plan both fall in November.

This leaves the Pound exposed to global investor sentiment and, more specifically, Federal Reserve interest rate expectations which will receive a major update on the outcome of the U.S. labour market report.

"GBP risks falling further today if FOMC rate hike expectations firm following the September non‑farm payrolls print," says economist Kim Mundy at CBA.

"With sterling having recovered from the volatility driven by Kwarteng’s mini-budget, the focus returns to the question of when the dollar dominance will resume," says Joshua Mahony, an analyst at IG.

The consensus expects the U.S. economy to have added 265K jobs in September, anything more would boost the Dollar as markets ramp up bets the Federal Reserve must hike harder and faster to slow the economy and bring down inflation.

Anything less could boost markets, and therefore the Pound.

"We're back to a world where bad news is good news for risk (a more dovish Central Bank) and that's the transmission mechanism to weaker USD on a downside miss and stronger USD on the upside," says strategist Elsa Lignos at RBC Capital Markets.

This would boost the Pound to Dollar exchange rate (GBP/USD) from current levels of around 1.1170.

Equity markets would rally, as would the Pound.

The Pound to Euro exchange rate (GBP/EUR) had risen to 1.1559 earlier in the week but has since retreated to 1.1395 and further losses would be likely in the event of a strong U.S. NFP print while gains could follow a weaker-than-expected release.

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"The pound has given back ground as focus shifts to America’s September jobs report Friday that, if strong, would keep the Fed on a path of aggressive, inflation-fighting rate hikes," says analyst Joe Manimbo at Convera.

"Policymakers at the world's most important central bank have repeatedly implied that they intend to raise interest rates until the unemployment starts to rise, at minimum, as they can so as long as we continue to see solid job growth and low unemployment, the dominant trend of monetary policy tightening across the globe remains intact," says Mathew Weller at Forex.com.

The Pound rallied sharply in the first two days of this week, rising alongside a rebound in global stock markets.

But, markets have since pulled back, taking the Pound lower, ahead of what could be the most important global economic release of the month for markets.

"To put it lightly, the stakes are high for traders," says Weller.

The Pound is usually a beneficiary when investor sentiment is positive and foreign investors are likely to buy UK assets.

The UK is a net importer of goods meaning it relies on financial inflows from foreigners to keep the Pound elevated and at times of market stress these inflows are less likely as investors opt to hold cash, creating downward pressure on the Pound.

Therefore the market's reaction to this key set of U.S. data forms the highlight of Sterling's day.

Global markets have fallen through 2022 in response to the Federal Reserve's policy of raising interest rates to bring inflation down.

Markets are currently seeing a 70% chance of another 75bps rate hike from the Fed next month.

Forex.com's playbook for today is as follows: