US August NFP, Fed Cut Hopes and Pound Lows

Markets are eagerly awaiting the latest jobs data from the US to assess when and how much the Fed might cut this year, while cable tests 4-week lows amid Budget concerns and a stronger greenback.

The Key Data Points

• US NFP expected to show continued labour market weakness at 75K, with unemployment rate ticking up to 4.3%
• Focus on Fed rate cut outlook after Powell suggested weakening in the US jobs market would open the door to a September rate cut.
• Cable is under pressure as the government prepares the Autumn budget, and the dollar is strengthening ahead of NFP figures.

NFP to Set Course for the Fed

Friday's Non-Farm Payrolls (NFP) are the last major jobs data that the Fed will have on hand going into the September 16-17 policy meeting. Markets are following poor JOLTS data, given Fed Chair Jerome Powell's Jackson Hole speech in which he opened the door to easing based on a deteriorating labour market. At the last meeting, the Fed kept rates unchanged, citing concerns about inflation-induced tariffs and that the jobs market was solid. Following the July NFP report, which included significant downward revisions to the prior two months, traders took the view that the jobs market is deteriorating enough to justify rate cuts. Which means the market could react to potential revisions to the June and July figures as much as the August headline data.

The consensus for August NFP is to come in at 75K, just fractionally higher than the 73K from a month before. While this would be the fourth month of increase, given the prior revisions, it would still be well below the 186K average for the preceding year. The unemployment rate is projected to tick up 4.3% from 4.2% in July, too, which is at the bottom end of what economists generally consider the range for full employment. But at the prior meeting, Fed officials argued that than the employment situation, and even acknowledged at the time that the labour market was starting to show cracks. Since then, several officials have made public comments suggesting that the labour market has weakened sufficiently to warrant considering monetary policy easing. JOLTS acted as the latest confirmation.

Market Reaction and Impact on Cable

The dollar has traded higher in the last couple of days amid a global rise in yields, despite growing signs that the Fed could turn more dovish. Republicans in Congress are working to expedite Lisa Cook's replacement at the Fed so former Trump economic adviser meeting. While this would naturally drag on cable, the pound has had issues on the British side that have left it trading at 4-week lows. A mini reshuffle in Prime Minister Kier Starmer's cabinet is understood to weaken the position of Chancellor Rachel Reeves as the government struggles to prepare the Autumn budget. Gilt yields rose to highs not seen in 27 years, as traders worry Reeves will have to go back on her pledge not to raise taxes again.

GBPUSD Could See Rebound if Data is Weaker

If the US labour market shows signs of being weaker than thought, that could weigh on the greenback and give cable a chance to rebound higher. A rebound could face resistance at the high before the latest rumours of a Chancellor replacement at 1.3550, intersecting the upper 'autotrend' line. A breakout could face the prior resistance of 1.3600, which held twice during August. The RSI has emerged from oversold territory but halted at the 50 line, suggesting that the downward momentum could still resume if the recent rally post-JOLTs comes to an end. If the NFP data injects renewed strength into the dollar, cable could return to challenge support at the round 1.3300 handle. A breakdown could head to the August low of 1.3140.

Source: SpreadEx | GBPUSD

Markets are eagerly awaiting the latest jobs data from the US to assess when and how much the Fed might cut this year, while cable tests 4-week lows amid Budget concerns and a stronger greenback.

The Key Data Points

• US NFP expected to show continued labour market weakness at 75K, with unemployment rate ticking up to 4.3%
• Focus on Fed rate cut outlook after Powell suggested weakening in the US jobs market would open the door to a September rate cut.
• Cable is under pressure as the government prepares the Autumn budget, and the dollar is strengthening ahead of NFP figures.

NFP to Set Course for the Fed

Friday's Non-Farm Payrolls (NFP) are the last major jobs data that the Fed will have on hand going into the September 16-17 policy meeting. Markets are following poor JOLTS data, given Fed Chair Jerome Powell's Jackson Hole speech in which he opened the door to easing based on a deteriorating labour market. At the last meeting, the Fed kept rates unchanged, citing concerns about inflation-induced tariffs and that the jobs market was solid. Following the July NFP report, which included significant downward revisions to the prior two months, traders took the view that the jobs market is deteriorating enough to justify rate cuts. Which means the market could react to potential revisions to the June and July figures as much as the August headline data.

The consensus for August NFP is to come in at 75K, just fractionally higher than the 73K from a month before. While this would be the fourth month of increase, given the prior revisions, it would still be well below the 186K average for the preceding year. The unemployment rate is projected to tick up 4.3% from 4.2% in July, too, which is at the bottom end of what economists generally consider the range for full employment. But at the prior meeting, Fed officials argued that than the employment situation, and even acknowledged at the time that the labour market was starting to show cracks. Since then, several officials have made public comments suggesting that the labour market has weakened sufficiently to warrant considering monetary policy easing. JOLTS acted as the latest confirmation.

Market Reaction and Impact on Cable

The dollar has traded higher in the last couple of days amid a global rise in yields, despite growing signs that the Fed could turn more dovish. Republicans in Congress are working to expedite Lisa Cook's replacement at the Fed so former Trump economic adviser meeting. While this would naturally drag on cable, the pound has had issues on the British side that have left it trading at 4-week lows. A mini reshuffle in Prime Minister Kier Starmer's cabinet is understood to weaken the position of Chancellor Rachel Reeves as the government struggles to prepare the Autumn budget. Gilt yields rose to highs not seen in 27 years, as traders worry Reeves will have to go back on her pledge not to raise taxes again.

GBPUSD Could See Rebound if Data is Weaker

If the US labour market shows signs of being weaker than thought, that could weigh on the greenback and give cable a chance to rebound higher. A rebound could face resistance at the high before the latest rumours of a Chancellor replacement at 1.3550, intersecting the upper 'autotrend' line. A breakout could face the prior resistance of 1.3600, which held twice during August. The RSI has emerged from oversold territory but halted at the 50 line, suggesting that the downward momentum could still resume if the recent rally post-JOLTs comes to an end. If the NFP data injects renewed strength into the dollar, cable could return to challenge support at the round 1.3300 handle. A breakdown could head to the August low of 1.3140.

Source: SpreadEx | GBPUSD