Pound Sterling's Rally Driven By American Payrolls

The British Pound Sterling has seen its strongest rally since mid-July, but it's not entirely due to domestic factors. The currency is currently trading near 1.3500 against the US Dollar and has added almost two cents in value since an early-August trough of just under 1.3300.

While a strong British economy would normally boost the Pound, this recent rally can be attributed to American payrolls data. The July nonfarm payroll contraction by 23K was significantly lower than the 80K consensus, which led to the Dollar index reaching its weakest level since early June.

The Pound's value has been influenced by rate pricing, with a September 16 increase now priced at 49.93% against 50.07% for a hold, making it the flattest reading this cycle has produced. However, October 28 still carries a 76.50% chance of at least one move.

The Bank of England held interest rates steady at 3.75% on July 30 with a Monetary Policy Committee split of 6-3, but three members preferred a more hawkish arrangement of 4.00%. This has led to speculation that the Pound could tighten further by October, one of the firmer tightening cases in the G10.

However, the domestic calendar remains empty until Thursday's GDP reading, which is expected to slow to 0.4% from 0.6%, potentially stripping the September tightening premium out of the Pound at a critical time.