Pound to U.S. Dollar: GBPUSD Back Above 1.25, Jobs Report Looms

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The Dollar has retreated in broad fashion as investor anxiety around the U.S. debt ceiling fades and they absorb Federal Reserve guidance that a June interest rate hike is unlikely; near term, all eyes are on today's jobs report.

The Pound to Dollar exchange rate (GBPUSD) has steadily appreciated through the course of the week but a decisive uptick was seen Thursday was recorded as investors slashed bets for a June rate hike at the U.S. Federal Reserve.

Money market pricing showed investors saw the prospect of another rate hike in June set at over 60% as recently as Tuesday. But this unravelled midweek and through Thursday as FOMC members signalled the Fed was likely to adopt a new strategy of hiking at 'every other meeting' in order to give itself more time to assess incoming data.

"The word 'skip' could be the new buzzword to describe the Fed's next likely monetary policy action. Fed speak suggests that the Fed could pause in June but be open to hiking in July. As a result market pricing for a June hike of 0.25% has dropped to a 36% likelihood, with a 0.25% hike in July up to a 84% likelihood," says Thanim Islam, Head of FX Analysis at Equals Money.

GBPUSD traded as low as 1.2334 on Monday but has since rallied to 1.2532 at the time of writing.

Fed hike expectations for both June and July are set to fluctuate further as investors absorb the latest U.S. jobs report, due at 13:30 BST. Expectations are set for non-farm payrolls to reveal an additional 180K jobs were created in May, down from 253K in April.

"Comments by permanent voters Fed Governors Philip Jefferson and Patrick Harker in which they expressed a preference to skip a potential interest rate hike this month, led to a repricing of risk ahead of Friday's all-important Non-Farm Payrolls and average hourly earnings," says Axel Rudolph, Senior Market Analyst at IG.

Should the number exceed expectations the odds of a June hike might head higher, offering the Dollar some support. A downside miss would have the opposite effect.

Above: GBPUSD at four-hour intervals.

Investors meanwhile reacted in a positive fashion to overnight news the Senate passed legislation to suspend the U.S. debt ceiling and impose restraints on government spending through the 2024 election, ending a drama that threatened a global financial crisis.

The Dollar often appreciates in times of market anxiety as investors across the globe opt for the safety of cash and U.S. monetary assets, therefore the debt ceiling resolution removes another leg of demand from under the Greenback near-term.

"Now that Democrats and Republicans have agreed to raise the U.S. debt ceiling and a new bill is expected to become law before the 5 June cut-off date at which the U.S. would default, the U.S. dollar advance stalls," says Rudolph.