Key Points:
The GBPUSD pair experienced a sharp reversal, with the pound erasing more than 1% in gains due to a sudden surge in the US dollar following the release of the US jobs report.
Picture: GBPUSD pair dropped 1% as the US dollar rallied, as observed on the VT Markets app.
Earlier in the session, the British pound reached a high of $1.3230, nearing its 2024 peak, before the greenback staged a rapid comeback, pushing the currency pair lower.
The jobs report revealed that the US economy added 142,000 jobs in August, falling short of the expected 164,000. Although this figure showed a slowdown in the labour market, the key takeaway for traders was the reaction of the Federal Reserve. Prior to the report, the market was pricing in a 25 basis point (bps) rate cut from the Fed. However, the weaker jobs data has raised concerns that this cut might not be sufficient to support economic growth. As a result, traders increased their bets on the possibility of more aggressive policy actions, which fueled demand for the US dollar.
Related content: Interest rate tug-of-war for central banks
What’s next for GBPUSD
Looking ahead, the Fed’s interest rate decision on September 18 will likely drive further volatility in the GBPUSD pair. If the Fed opts for a larger 50bps rate cut, it could weaken the dollar and give the pound a chance to recover. Conversely, a more modest cut could strengthen the dollar further, creating headwinds for the pound.
Risks and opportunities in the market
For short-term traders, the volatility surrounding the Fed’s next move presents both risks and opportunities. A surprise in the size of the Fed’s rate cut could lead to sharp price movements in the GBPUSD currency pair. Traders should remain cautious and closely monitor upcoming US economic data, such as inflation and retail sales, as these could offer additional clues on the Fed’s policy direction.
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