GBP/USD is trading higher on Friday, supported by broad US Dollar weakness as the US government shutdown extends into its third day, leaving markets without the September Nonfarm Payrolls report. At the time of writing, the pair trades at 1.3471, up 0.26% on the day, after bouncing from session lows of 1.3427.
US services data signals slowdown
The latest PMI readings highlight weakening momentum in the US economy. The ISM Services PMI slipped sharply to 50 in September from 52 in August, its lowest level this year and in line with neutral growth. The Employment Index within the survey remained in contraction territory, pointing to continued labor market softness.
In contrast, the S&P Global Services PMI came in stronger than expected, rising to 54.2 from 54.0 and above forecasts of 53.9. Still, commentary from ISM respondents suggested “moderate or weak growth,” with firms citing hiring delays and difficulties in finding qualified staff.
Fed outlook clouded by data blackout
The shutdown has created a policy challenge for the Federal Reserve, with the lack of official labor data complicating rate guidance. Fed Governor Stephen Miran underscored the importance of incoming data, while noting that inflation expectations remain anchored and the real neutral rate is near 0.5%.
Chicago Fed President Austan Goolsbee also stressed that the Fed will remain data dependent, adding that both sides of the central bank’s mandate—employment and price stability—are showing signs of deterioration. He estimated the unemployment rate at around 4.3% based on the Chicago Fed’s own measures.
UK services PMI slows but BoE likely to hold
In the UK, services sector activity slowed to a five-month low, with the S&P Global Services PMI dipping to 50.8 in September from 51.9 in August, missing expectations. Despite the soft reading, the Bank of England is expected to keep rates steady, with inflation running at 3.8% year-on-year in August and projected to edge higher to 4% in September.
Central bank divergence supports Sterling
Market pricing suggests the Federal Reserve may cut rates by 25 basis points at its upcoming meeting, while the Bank of England is likely to hold steady. This policy divergence continues to underpin GBP/USD, with the pair maintaining a constructive bias as long as the Fed leans toward easing while the BoE stays cautious.
