**GBP/USD Rises Amid Weak US Jobs Data and Growing Fed Rate Cut Bets**
*Based on reporting by Sagar Dua, FXDailyReport.com*
The GBP/USD currency pair has experienced a notable upward movement, spurred by disappointing labor market data out of the United States and an increasing expectation among investors that the Federal Reserve will roll out rate cuts sooner than previously anticipated. As market participants digest the recent economic readings, the pound sterling has taken advantage, strengthening against the US dollar in the wake of shifting interest rate sentiments and ongoing economic uncertainties on both sides of the Atlantic.
In this comprehensive analysis, we explore the forces behind the GBP/USD rally, examining the latest US jobs data, factors influencing the Federal Reserve’s monetary stance, the Bank of England’s (BoE) positioning, technical perspectives, and what traders should consider as the FX landscape evolves.
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**US Labor Market Shows Signs of Weakness**
The primary catalyst for the GBP/USD’s recent ascent has been the latest US jobs data, which points to a cooling labor market. This evidence has not only stoked risk sentiment but also fueled speculation that the Federal Reserve could move to ease monetary policy as early as September 2024.
Key highlights from the June 2024 US jobs report include:
– **Nonfarm Payrolls (NFP):** US employers added 206,000 jobs in June, which, while outpacing expectations of 190,000, represents a slowdown from the revised May figure of 218,000.
– **Unemployment Rate:** The unemployment rate ticked up to 4.1 percent from the prior 4.0 percent, marking its highest level since late 2021 and exceeding market forecasts of 4.0 percent.
– **Average Hourly Earnings:** Wage growth cooled further, with average hourly earnings rising by just 0.3 percent month-on-month as opposed to May’s 0.4 percent.
– **Labor Force Participation Rate:** This gauge held steady at 62.6 percent in June.
The rising unemployment rate and moderating wage pressures collectively signal that the US labor market is losing momentum. For currency markets, such a backdrop erodes some of the support that the greenback typically derives from robust economic performance and high interest rate differentials.
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**Fed Rate Cut Expectations Gather Steam**
In response to the softening jobs data, market-implied probabilities for Fed policy action have shifted. Investors are increasingly betting that the US central bank will begin easing rates sooner, a trend that has weighed on the dollar and helped cable (GBP/USD) extend its rally.
Current market expectations (as tracked post-NFP):
– There is now over a 70 percent likelihood that the Federal Reserve will deliver its first 25 basis point rate cut in September 2024, up from around 60 percent prior to the report.
– Traders are pricing in two rate cuts by year-end, with the second potentially arriving in December.
This growing conviction in approaching Fed easing has pressured US Treasury yields to the downside:
– The yield on the 10-year US Treasury note dropped back below the psychologically significant 4.30 percent mark, a level closely watched by currency traders.
Lower yields typically make the dollar less attractive relative to peers, especially against currencies like the pound where the respective central bank is not seen as imminently dovish.
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**Bank of England’s Position Remains Uncertain**
While the Federal Reserve appears to be inching closer to pivoting away from its hawkish stance, the Bank of England (BoE) remains more ambiguous about its near-term policy trajectory.
Key considerations for the BoE include:
– The UK’s inflation data has cooled but remains above the central bank’s 2 percent target.
– Rate markets project a roughly 68 percent chance that the BoE will lower rates by 25 basis points at its August 2024 meeting.
– There is still only a single BoE rate cut fully priced in for 2024, compared to
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