GBP/USD recovered from an initial decline on Friday after stronger-than-expected US employment data briefly boosted the US Dollar (USD). The pair dropped to an intraday low of 1.3482 following the release before regaining ground, trading around 1.3512 at the time of writing.
US Nonfarm Payrolls (NFP) increased by 162,000 in August, nearly three times the market expectation of 56,000. The July figure was also revised significantly higher, showing a 21,000 job increase compared with the previously reported 23,000 decline. Meanwhile, the US unemployment rate remained unchanged at 4.1%, matching expectations.
The US Dollar Index (DXY) initially jumped to 99.39 following the employment report but subsequently eased toward 99.11. Despite the pullback, the index remains above Thursday’s more than one-week low of 98.83.
The limited downside reaction in GBP/USD suggests investors remain cautious about assuming that the strong payrolls figure alone will guarantee a Federal Reserve (Fed) rate increase this month. Policymakers continue to emphasize the importance of bringing inflation back toward the 2% target, making next week’s Consumer Price Index (CPI) and Producer Price Index (PPI) reports particularly important for the September policy decision.
Recent inflation data have shown signs of cooling. Fed Governor Christopher Waller said he was seeing indications of disinflation and suggested that the current policy setting could help return inflation to target. However, he also indicated that a September rate hike remains possible if August inflation proves unexpectedly strong.
Despite this uncertainty, the robust employment figures have lifted market expectations for tighter Fed policy. CME FedWatch pricing now implies approximately a 60% probability of a 25-basis-point increase at the September 15-16 meeting, up from around 50% before the NFP release.
Sterling is receiving some support from hawkish commentary in the UK. Bank of England (BoE) Chief Economist Huw Pill reiterated his preference for raising the Bank Rate toward 4%. Nevertheless, financial markets broadly anticipate that the BoE will leave its benchmark rate unchanged at 3.75% later this month.
Trade idea: GBP/USD remains vulnerable below 1.3550; a break under 1.3480 could target 1.3440, while a sustained move above 1.3550 may open 1.3600.