The local currency traded lower against the British pound sterling in the last trading session of this week. The pound was trading at N2,112.8/£1 on the unofficial market.
Price action shows that sellers are in control after the naira lost the N2,000/£1 support line.
Price action confirms that the domestic currency has been depreciating against the pound, dollar, and euro over the past three months despite the recent introduction of the Retail Dutch Auction by the CBN.
Importers and travelers have added more pressure to the local currency market amid a relatively fragile FX market.
The CBN’s attempts to fortify the naira have been made more difficult by tepid oil production, petrol subsidies, and weak dollar liquidity, despite an increase in the country’s foreign exchange assets.
U.S. Farm Payroll Data Takes Center Stage
The GBP/USD pair traded in a narrow range during the European session on Friday. Market participants are steering clear of large positions as the focus shifts to the US Non-Farm Payrolls data for August, which could influence the Fed’s outlook on interest rates.
Few details remain regarding the UK economy as Friday’s markets approach. The US Non-Farm Payrolls (NFP) job growth, scheduled for today, is anticipated to be a significant event that will attract substantial attention from investors.
According to ADP data, the US saw a gain of 99K in net new employment in August, much less than the 145K expected and down from the revised 111K in July. The fact that August’s ADP additions represent the lowest reading since early 2021 has made markets more risk-averse and reignited concerns about a potential US recession.
Even though the ADP jobs report has a patchy track record for accuracy, it is a good indicator of what the markets might anticipate from Friday’s US Non-Farm Payrolls report. Before the Federal Reserve’s (Fed) upcoming rate decision on September 18, when Fed policymakers are widely expected to begin a rate-cutting cycle, August’s NFP report represents the last meaningful labor update.
The NFP print for Friday is expected to be 160K, up from 114K the previous month. The CME reports that rate markets are currently placing 40% odds on the Fed surprising everyone with a 50 basis point rate cut later in the month, while the remaining 60% are betting on a more modest 25 basis point reduction.
Currency traders hope to use the NFP print to gauge the extent of the first rate cut since the Fed slashed rates by 100 basis points in March 2020.
The British pound is one of the main currencies performing well against the US dollar; it has already increased by 4% this year. Market bets that more rate cuts will occur in the US this year compared to the UK led to the recent spike. Meanwhile, the UK economy has improved, recovering from the previous year’s decline.
Policymakers’ recent remarks at the Jackson Hole Symposium revealed that the Fed is more willing to lower borrowing costs than the Bank of England. Market expectations anticipate a combined reduction of 100 basis points from the Fed and 65 basis points from the BoE.
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