**GBP/USD falls as solid US jobless claims data cools July Fed cut hopes**
*Original reporting by Christian Borjon Valencia, FXStreet*
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The GBP/USD pair retraced from its recent highs on Thursday, weighed down as unexpectedly robust US employment data reduced the likelihood of an imminent rate cut by the Federal Reserve. With rising optimism surrounding US labor market strength and shifting interest rate expectations, the British pound lost ground against the US dollar in the wake of the jobless claims release. In this comprehensive analysis, we delve into the key drivers behind the move, assess the technical outlook, and provide context on the pivotal factors influencing GBP/USD in the near future.
## US Jobless Claims Surpass Expectations
On July 11, the US Department of Labor reported that Initial Jobless Claims for the week ending July 6 fell to 222,000, down from 239,000 in the previous period and notably lower than the consensus estimate of 236,000. The claims figure, a proxy for layoffs and a measure of the health of the labor market, signaled resilience and provided reassurance to investors about the state of the US economy.
– **Key highlights from the data:**
– **Initial Jobless Claims:** 222,000 (Actual); 236,000 (Expected); 239,000 (Previous)
– The 4-week moving average edged slightly higher to 233,500 but remains at historically low levels.
– Continuing claims, which track the number of people receiving unemployment benefits after an initial week, stayed relatively steady at 1.85 million.
This unexpected strength in labor market data made investors rethink the likelihood of a near-term US interest rate cut, as a robust job market indicates less urgency for additional Federal Reserve easing.
## Market Reaction: GBP/USD Slides
In response to the jobless claims release, the US dollar strengthened significantly, snapping a recent losing streak. The GBP/USD currency pair, which had previously tested levels above 1.2850, reversed course to trade below 1.2800 shortly after the data.
– **Immediate market reactions:**
– US dollar index (DXY) rebounded from intraday lows above 105.00.
– GBP/USD fell sharply, registering more than a 0.3% decline on the day by mid-afternoon London time.
– US 10-year Treasury yields recovered from a brief dip, supporting the greenback.
Currency traders interpreted the employment data as a signal that the Federal Reserve could wait until later in the year—possibly September or even beyond—before delivering its first post-pandemic interest rate cut. Consequently, the dollar rallied, weighing on risk-sensitive currencies like the pound.
## Fed Rate Cut Bets Get Pushed Back
Ahead of the jobless claims report, expectations had been mounting that the Fed would lower its benchmark interest rate as soon as the July Federal Open Market Committee (FOMC) meeting, particularly after recent signs of a cooling labor market and softer inflation readings. However, Thursday’s data challenged that narrative.
– **FedWatch Tool (post-release):**
– Probability of a July cut drops below 10%.
– Market now prices in roughly a 70% chance of a 25 bps cut in September.
– Odds of two cuts by year-end have diminished sharply, as policymakers call for more evidence of disinflation and labor market slack before acting.
In recent commentary, Federal Reserve Chair Jerome Powell and other central bank officials have maintained a cautious stance. Powell’s testimony to US lawmakers earlier in the week reiterated a data-dependent approach, warning that it would not be appropriate to cut rates “until we have greater confidence that inflation is moving sustainably toward 2%.” With this week’s jobs data defying expectations for a material slowdown, investors are recalibrating their expectations.
## UK Economic Picture Lacks Positive Surprises
Compounding the pressure on sterling are several homegrown factors:
1. **UK growth
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