Sterling Rebounds as Weak US Jobs Data Reduce Fed Rate Hike Expectations

The British Pound is recovering against the US Dollar as a sharply weaker US employment report reduces expectations for a Federal Reserve rate increase in October.

GBP/USD has rebounded above 1.32, trading around 1.3250 after recovering from an intraday move below 1.3200. Sterling is gaining support from the changing US monetary-policy outlook, while expectations for additional Bank of England tightening continue to provide a relative advantage.

The key question for the coming sessions is whether the latest US labour-market weakness represents a temporary deterioration or the beginning of a broader slowdown that could materially alter Federal Reserve policy expectations.

Market Snapshot

Sterling Recovers as US Payrolls Miss Expectations

Sterling is gaining ground as the latest US employment report significantly underperforms expectations.

The US economy added only 29,000 jobs in September, well below the 90,000 consensus estimate.

August payroll growth was also revised lower, from 162,000 to 133,000.

The unemployment rate increased from 4.1% to 4.2%, adding further evidence that labour-market momentum is moderating.

The combination has caused markets to reduce expectations for another Federal Reserve rate increase, creating immediate pressure on the Dollar.

October Fed Hike Expectations Fall

Money markets now place the probability of the Federal Reserve keeping interest rates unchanged at approximately 79% for the October meeting.

Expectations for an October rate increase have consequently been substantially reduced.

This shift is important for GBP/USD because the relative direction of US and UK interest-rate expectations remains one of the major drivers of the currency pair.

A less hawkish Federal Reserve reduces the yield advantage of Dollar assets and can provide Sterling with additional support.

However, the sustainability of the Pound’s recovery will depend on whether incoming US data continue to reinforce the weaker rate outlook.

US Treasury Yields Remain Elevated

Despite the weak payroll report, US Treasury yields have remained relatively firm.

The long end of the Treasury curve has been broadly steady, while the 10-Year Treasury yield is reported around 5.256%, approximately 1.5 basis points higher.

The resilience of yields suggests that markets are not yet fully embracing a substantial deterioration in the broader US economic outlook.

This remains an important consideration for GBP/USD. If Treasury yields remain elevated, the Dollar may retain some underlying support even as expectations for an October rate hike decline.

Bank of England Expectations Support Sterling

Sterling also continues to benefit from expectations that the Bank of England could tighten monetary policy further.

Markets are pricing approximately 30 basis points of additional BoE tightening by year-end and around 90 basis points through 2027.

This creates an important contrast with the changing Federal Reserve outlook.

If US rate expectations decline while UK rate expectations remain relatively firm, the interest-rate differential could become more supportive for GBP/USD.

The next series of comments from Bank of England officials will therefore be closely monitored for indications of how policymakers view inflation, economic activity and future interest rates.

UK Policy Signals Remain Important

The UK economic calendar has been relatively light, leaving central-bank communication as an important source of information.

Upcoming speeches from Bank of England officials Mann and Lombardelli could provide additional guidance on the policy outlook.

Markets will be particularly sensitive to any comments that alter expectations for the timing or scale of future tightening.

Political Developments Remain a Secondary Factor

UK political developments are also attracting attention, although monetary policy and the US labour market remain the more immediate drivers of GBP/USD.

Recent comments from Andy Burnham regarding the possibility of the UK rejoining the European Union have generated discussion, particularly in the context of his campaigning during the 2016 referendum.

For the currency market, the more direct focus remains on economic policy, interest-rate expectations and the broader UK-US growth differential.

GBP/USD Technical Outlook

GBP/USD is trading around 1.3225–1.3250 after recovering from below 1.3200.

Despite the latest rebound, the broader near-term technical structure remains under pressure while the pair trades below the cluster of major simple moving averages around 1.3453.

The first significant resistance area is the descending trendline near 1.3313.

A sustained move above that level would improve the immediate technical structure and bring the next resistance region around 1.3434 into focus.

That area is close to the major moving-average cluster around 1.3453, making it an important test for any broader Sterling recovery.

Above that region, additional resistance appears around 1.3544, followed by the higher structural level near 1.3745.

GBP/USD Support and Resistance

The current technical structure leaves several important reference levels for the coming sessions.

Initial resistance: 1.3313

Secondary resistance: 1.3434

Major moving-average resistance: 1.3453

Higher resistance: 1.3544

Major structural resistance: 1.3745

The recent area below 1.3200 remains an important short-term downside reference.

The Relative Strength Index is around 33.9, placing momentum just above traditionally oversold territory.

That suggests selling pressure remains evident, but also indicates that downside momentum could begin to moderate if Dollar strength continues to fade.

Bullish GBP/USD Scenario

GBP/USD could gain further support if:

• US employment weakness continues.
• Federal Reserve rate-hike expectations decline further.
• US Treasury yields move lower.
• Bank of England tightening expectations remain firm.
• UK economic data improve.
• GBP/USD breaks sustainably above 1.3313.
• Sterling attracts renewed demand as the UK-US rate differential becomes more favourable.

A sustained move through 1.3434–1.3453 would represent a more meaningful improvement in the technical structure.

Bearish GBP/USD Scenario

GBP/USD could remain under pressure if:

• US economic data rebound.
• Federal Reserve officials maintain a restrictive policy stance.
• US Treasury yields remain elevated or rise further.
• UK economic activity weakens.
• BoE tightening expectations decline.
• GBP/USD fails to hold its recent recovery.
• The pair remains below the major moving-average cluster.

A renewed move below 1.3200 would increase focus on whether the recent Dollar strength is resuming.

Sterling Outlook

Sterling’s immediate outlook has improved following the weak US payroll report, but the recovery remains dependent on confirmation that US labour-market weakness is translating into a more sustained shift in Federal Reserve expectations.

The Pound also has a source of support from expectations for further BoE tightening.

The relative policy outlook between the two central banks will therefore remain critical.

US Dollar Outlook

The Dollar is facing near-term pressure from the sharp deterioration in US employment data.

However, the continued elevation of Treasury yields suggests that markets remain cautious about interpreting the payroll report as evidence of a decisive US economic slowdown.

Further US economic releases will be important in determining whether the latest shift in Fed expectations is maintained.

Rate Differential Outlook

The US-UK interest-rate differential remains central to GBP/USD.

Lower expectations for an October Federal Reserve hike reduce some of the Dollar’s rate advantage, while expectations for approximately 30 basis points of additional BoE tightening by year-end provide Sterling with relative support.

The next phase of the currency pair will depend on whether this divergence persists.

Louis Roche Analysis

Sterling has received an immediate boost from a significant deterioration in US employment data, but the latest rebound should be viewed within the context of a broader technical structure that remains under pressure.

The September payroll increase of just 29,000, combined with an unemployment rate of 4.2%, has substantially reduced expectations for an October Federal Reserve rate increase. That is clearly changing the short-term interest-rate narrative in favour of GBP/USD.

At the same time, markets continue to anticipate approximately 30 basis points of BoE tightening by year-end, creating a potentially more supportive relative rate environment for Sterling.

Technically, however, GBP/USD has work to do before the recent recovery becomes a more significant change in structure. The first major test is 1.3313, followed by the 1.3434–1.3453 resistance zone.

The RSI near 33.9 indicates that downside momentum has become stretched, but it does not by itself confirm a sustained reversal.

For the coming sessions, the critical question is whether weaker US labour data lead to a lasting decline in US rate expectations, while UK monetary-policy expectations remain firm.

If that divergence develops, Sterling could receive additional support. If subsequent US data restore confidence in the US economy and Treasury yields remain elevated, the Dollar could regain some of its lost ground.

Coming Sessions

Market attention will remain focused on:

• Bank of England speeches from Mann and Lombardelli.
• US ISM Services PMI.
• FOMC meeting minutes.
• US jobless claims.
• University of Michigan consumer sentiment.
• US Treasury yields.
• Changes in October Federal Reserve rate expectations.
• UK monetary-policy expectations.
• GBP/USD’s reaction around 1.3313.
• The 1.3434–1.3453 resistance zone.

The interaction between US employment data, Federal Reserve expectations and the Bank of England’s policy outlook should remain the principal driver of GBP/USD.

Currency Hedger View

GBP/USD volatility can directly affect businesses with UK-US payment flows, international revenues, supplier costs and foreign-currency exposure. Changes in the relative interest-rate outlook between the Federal Reserve and Bank of England can also produce significant movements in Sterling.

Currency Hedger monitors foreign exchange markets alongside broader commodity and macroeconomic conditions, helping businesses assess and manage their international currency exposure.

Open an account with Currency Hedger:

Open a Currency Hedger Account

Visit Currency Hedger:

Currency Hedger

Contributor: Currency Hedger

Market analysis prepared for Today Markets. For informational purposes only and not intended as investment, trading, financial or commodity advice.

Register a Revolut Business Account