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Key Moments

  • GBP/USD trades around 1.3506, near a three-week high, after weaker-than-expected U.S. Nonfarm Payrolls data.
  • The U.S. economy lost 23K jobs in July versus expectations for an 80K increase, while the unemployment rate declined to 4.1% from 4.2%.
  • Market-implied odds of a Federal Reserve rate hike in September drop to about 42.1%, compared with 67% a week earlier.

Sterling Advances as Dollar Sinks on Jobs Miss

The British Pound (GBP) appreciates against the U.S. Dollar (USD) on Friday after a weaker U.S. labor market report prompts investors to curb expectations for additional Federal Reserve interest-rate increases. At the time of writing, GBP/USD changes hands near 1.3506, keeping the pair close to its highest level in roughly three weeks.

The latest Nonfarm Payrolls release shows that the U.S. economy shed 23K jobs in July, a stark contrast to consensus forecasts calling for an 80K gain. In addition, June’s employment increase was revised down sharply to 20K from an initially reported 57K. Despite the disappointing payrolls data, the Unemployment Rate unexpectedly improves, slipping to 4.1% from 4.2%.

Dollar Index and Treasury Yields Retreat

The weaker employment figures weigh on the Greenback and U.S. government bond yields. The U.S. Dollar Index (DXY) – which tracks the performance of the currency against a basket of six major peers – trades around 99.50, representing a decline of nearly 0.45% on the session.

In the U.S. rates market, the benchmark 10-year Treasury yield falls toward 4.60%, easing about eight basis points from its intraday high of 4.68% as traders reassess the trajectory for Fed policy.

IndicatorLatest ReadingPrevious / Reference
GBP/USD1.3506 (around three-week high)
U.S. Nonfarm Payrolls (July)-23K80K expected
U.S. Nonfarm Payrolls (June, revised)20K57K prior estimate
U.S. Unemployment Rate4.1%4.2% prior
U.S. Dollar Index (DXY)99.50Down ~0.45% on day
10-year U.S. Treasury yield4.60%Intraday high 4.68%
WTI crude oil$76 per barrelDown nearly 10% this week
Probability of September Fed hike*~42.1%67% a week ago

*According to the CME FedWatch Tool.

Fed Expectations Repriced as Inflation Pressures Ease

Data from the CME FedWatch Tool indicate that traders now assign roughly a 42.1% chance of a rate increase at the Federal Reserve’s September meeting, a marked pullback from 67% one week earlier. The combination of softer employment data and moderating inflation concerns is prompting investors to reconsider how restrictive policy may need to be.

Inflation risks related to energy also appear to be receding as crude prices slump. West Texas Intermediate (WTI) crude trades near $76 per barrel, down almost 10% for the week. The drop follows reports that Iran and Oman have moved closer to agreeing on a framework that could temporarily boost shipping activity through the Strait of Hormuz, though no final announcement has been made.

Market Focus Turns to Upcoming U.S. CPI Report

Investors are now looking ahead to the next U.S. Consumer Price Index (CPI) release for additional insight into the inflation backdrop and its implications for Fed policy. Market expectations currently point to a 0.1% month-on-month increase in headline CPI for July, following a 0.4% decline in June. Core CPI is projected to rise 0.2% after remaining unchanged in the previous month.

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