The British Pound (GBP) fell below the 1.3400 mark against the US Dollar (USD) on Friday, recording a 0.37% loss after the latest US Nonfarm Payrolls (NFP) report significantly surpassed expectations. The May NFP rose by 172,000, more than doubling the anticipated 85,000 increase, reinforcing the view that the US labor market is robust and possibly near full employment. The US unemployment rate remained steady at 4.3%, further supporting the case for the Federal Reserve (Fed) to maintain a focus on combating inflation through potential rate hikes [1].
The strong labor data fueled a rally in the US Dollar, with the US Dollar Index (DXY) climbing 0.38% to 99.80 after rebounding from daily lows near 99.15. Market participants have now priced in a 67% probability of a Fed rate hike at the December meeting, while expectations for June indicate rates will remain unchanged. Cleveland Fed's Beth Hammack commented that it is 'reasonable to keep rates steady for now, but if recent trades continue, it may soon be appropriate to act against high inflation' [1].
In the UK, the absence of significant economic data left GBP/USD influenced by speculation that the Bank of England (BoE) may raise rates sooner than the Fed, with swaps markets implying 45 basis points of tightening by year-end. However, political uncertainty is weighing on Sterling, as Labour mayor Andy Burnham suggested he might challenge Prime Minister Keir Starmer's leadership if Labour wins the upcoming election. Reports also indicate Burnham may retain Chancellor Rachel Reeves if he becomes Prime Minister [1].
Looking ahead, the US economic calendar will feature key inflation data and jobless claims, while the UK will release retail sales, GDP, and industrial production figures for May. Technically, GBP/USD remains bearish in the near term, trading at 1.3375 and staying below the 50-, 100-, and 200-day Simple Moving Averages clustered around 1.3454 [1].
CONCLUSION
The US Dollar's rally, driven by a strong Nonfarm Payrolls report, has pressured the British Pound below 1.3400, with markets now anticipating a potential Fed rate hike by December. Political uncertainty in the UK and upcoming economic data releases in both countries could further influence GBP/USD in the near term.