Pound Sterling regains composure after doubts over Chancellor Reeves fuel slump

• The Pound Sterling oscillates in a tight range around 1.3650 against the US Dollar after falling by a sharp 0.8% on Wednesday.
• Investors dumped UK assets, including the Pound, amid political jitters surrounding UK Chancellor Rachel Reeves.
• Surging UK bond yields due to higher welfare benefits have weighed on the Pound Sterling.

The Pound Sterling (GBP) trades in a tight range around 1.3650 against the US Dollar (USD) during European trading hours on Thursday. The GBP/USD pair seems to have found a floor after Wednesday's slump, in a broad sell-off in UK assets due to growing question marks around the continuity of Chancellor of the Exchequer Rachel Reeves.

The Pound, which fell more than 1% before paring some losses, regained some ground after Prime Minister Keir Starmer said that Reeves - who is seen by markets as a big defender of fiscal rules - would continue in her post.

Looking at the economic calendar, investors await the United States (US) Nonfarm Payrolls (NFP) data for June, which will be published at 12:30 GMT.

Investors will closely monitor the US employment data as comments from a few Fed officials, including Vice Chair for Supervision Michelle Bowman, have signaled increasing labor market risks.

"It is time to consider adjusting the policy rate," Bowman said in the last week of June and added, "We should put more weight on downside risks to the job market going forward."

According to the estimates, the US economy added 110K fresh workers, fewer than 139K in May. The Unemployment Rate is estimated to have accelerated to 4.3% from the prior reading of 4.2%.

Meanwhile, the Average Hourly Earnings data, a key measure of wage growth, is expected to have grown steadily by 3.9% on year. Month-on-month wage growth measure is estimated to have risen at a slower pace of 0.3%, compared to a 0.4% growth seen in May.

Signs of softening labor market conditions would allow traders to raise bets supporting early interest rate cuts from the Fed. On the contrary, upbeat numbers would allow Fed officials more time to assess the impact of new economic policies announced by US President Donald Trump on the economy.

Daily digest market movers: Pound Sterling struggles amid surging bond yields

• The Pound Sterling strives to stabilize against its peers on Thursday after underperforming in first three trading days of the week, following a sharp surge in United Kingdom (UK) gilt yields.
• 10-year UK gilt yields surged 17 basis points (bps) or almost 4% to near 4.61% on Wednesday after Prime Minister Keir refrained from backing Chancellor of the Exchequer Rachel Reeves till next elections, following the announcement of an increase in welfare schemes by the government. However, PMI Starmer stated later that "She [Chancellor Reeves] is going nowhere".
• The Downing Street increases standard allowance for Universal Credit (UC) to provide additional support to low-income households, which has become effective this month. The welfare bill introduced at the House of Commons this week has put Chancellor Reeves' fiscal commitment into question after vowing to cut benefits in the Autumn statement to strengthen country's fiscal position.
• New welfare reforms are expected to wipe out governments' plans to save £5.5 billion by 2029-2030, which it decided to raise through reducing the UC health element for new claimants, according to data from UK Institute for Fiscal Studies (IFS).
• Higher borrowing costs for the UK government at a time when the economy is battling with global trade war risk have jeopardized the economic outlook.
• On the monetary policy front, Bank of England (BoE) policymaker Alan Taylor has supported five interest rate cuts this year against four as anticipated by market participants, citing downside economic risks in 2026 due to demand weakness and trade disruptions, while speaking at the European Central Bank (ECB) summit in Sintra on Wednesday. Taylor was one of three BoE officials who supported an interest rate cut in the June policy meeting.

Technical Analysis: Pound Sterling holds 20-day EMA

The Pound Sterling trades sideway to near 1.3650 against the US Dollar on Thursday. The GBP/USD pair recovers after sliding to near the 20-day Exponential Moving Average (EMA), which trades around 1.3600.

The 14-day Relative Strength Index (RSI) falls below 60, suggesting that the bullish momentum has faded.

Looking down, the psychological level of 1.3500 will act as key support zone. On the upside, the three-and-a-half-year high around 1.3800 will act as key barrier.