• The Pound Sterling finds temporary support near 1.3100 against the US Dollar as the Greenback corrects slightly.
• Investors see the Fed reducing interest rates this month but are split over the size of the potential rate cut.
• The BoE’s policy-easing cycle is expected to be shallow for the remainder of the year.

The Pound Sterling (GBP) tries to find a firm footing near the round-level support of 1.3100 in Wednesday’s London session. The GBP/USD pair struggles to gain bids as the market sentiment sours amid increasing uncertainty ahead of the United States (US) Nonfarm Payrolls (NFP) data for August, which will be published on Friday.

S&P 500 futures decline further in European trading hours after a bearish Tuesday, exhibiting a sharp decline in the risk appetite among market participants. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, corrects marginally to near 101.60. 

The official labor market data will influence market speculation about the size of the Federal Reserve (Fed) interest rate cut in September. Markets are fully pricing in that the Fed will pivot to policy normalization this month, but traders remain divided about whether the central bank will begin the policy-easing cycle aggressively, with a big interest rate cut, or more gradually.

If the US NFP data points to a further slowdown in labor demand and higher unemployment, market expectations for the Fed reducing its key borrowing rates by 50 basis points (bps) would increase sharply. In a speech at the latest Jackson Hole (JH) Symposium, Fed Chair Jerome Powell vowed to support the labor market in case it continues to deteriorate. On the contrary, steady or better-than-projected job data would weaken expectations of a big rate cut.