The GBP/USD exchange rate has shown a modest but meaningful rebound in recent trading sessions, rising to 1.3500 from this month’s low of 1.3335, following the release of surprisingly weak US employment data.
The move reflects growing market expectations that the Federal Reserve (Fed) may announce an interest rate cut in the upcoming monetary policy meeting, signaling a potential shift in US monetary policy. The BluSkyMint team, through Daniel Norman, simplifies the subject with a carefully detailed breakdown in this piece.
US Jobs Data Fuels Fed Rate Cut Speculation
The non-farm payrolls (NFP) report, published by the Bureau of Labor Statistics (BLS), showed the US economy created only 22,000 jobs in the last month, with the unemployment rate climbing to 4.3%, the highest level since the COVID-19 pandemic.
These disappointing numbers reinforced concerns that corporate hiring has slowed due to heightened tariff pressures and ongoing trade tensions.
The US Administration’s imposition of minimum import tariffs of 10% on all goods, with some countries like India and Brazil facing tariffs up to 50%, has contributed to a constrained labor market. Sluggish job creation, coupled with rising unemployment, points to an economy grappling with stagflation, a scenario marked by high inflation alongside slow economic growth.
In this context, upcoming US inflation data will be critical. Economists surveyed by Reuters expect the headline Consumer Price Index (CPI) to continue its gradual upward trend as businesses adjust prices to account for reciprocal tariffs. Meanwhile, core inflation, which excludes volatile food and energy prices, is forecasted to climb to 3.3%, moving further away from the Fed’s 2% target.
GBP/USD Technical Analysis
From a technical analysis perspective, the GBP/USD pair has displayed a clear bullish structure. On the daily chart, the pair rebounded from a low of 1.3143 in August to the current 1.3500, surpassing a key resistance level at 1.3428, which had been a notable ceiling since September of the previous year.
The pair remains comfortably above the 50-day and 100-day Exponential Moving Averages (EMA), a classic signal that bullish momentum is firmly in control. Additionally, the formation of an inverse head-and-shoulders pattern suggests that further upside potential remains intact.
The immediate support level to watch is 1.3430; a sustained break below this point could invalidate the current bullish outlook. Conversely, the next psychological target for the bulls is 1.3600, a level that could attract renewed buying interest if market sentiment remains positive.
Broader Market Context
While the Federal Reserve appears poised to ease monetary policy, the Bank of England (BoE) is expected to maintain its current interest rate stance. Soaring UK inflation is keeping the BoE cautious, limiting its willingness to cut rates in the near term.
This divergence in monetary policy outlooks, with the Fed potentially easing and the BoE holding firm, provides additional technical support for the GBP/USD pair.
Furthermore, investors are increasingly monitoring other macro indicators that could influence the GBP/USD trend, including upcoming UK inflation data, retail sales, and any Brexit-related developments affecting trade flows. On the US side, future CPI releases, retail sales, and consumer sentiment will play a critical role in shaping expectations for Fed action.
Trading Implications
For traders, the current setup suggests a bullish bias for the GBP/USD pair, with opportunities to target 1.3600 while managing risk near 1.3430. The alignment of technical patterns, EMA support, and the broader macro backdrop, weaker US labor data, rising stagflation risks, and Fed rate cut expectations creates a favorable environment for long positions.
Risk management remains essential, especially in a period of elevated market volatility driven by economic data releases and potential geopolitical events. Traders may consider using stop-loss orders below the key support levels to protect against sudden market reversals, while monitoring any shifts in Fed guidance that could alter the interest rate landscape.
Conclusion
In summary, the GBP/USD exchange rate has displayed a bullish trajectory, supported by weak US employment data, rising rate cut expectations, and a strong technical structure. As the Federal Reserve signals a potential 0.25% rate cut, and the Bank of England maintains rates in the face of high UK inflation, market conditions appear favorable for further gains in the GBP/USD pair.
Traders should remain alert to upcoming US inflation figures, non-farm payroll updates, and central bank statements, which could either reinforce or challenge the current bullish forecast. With the inverse head-and-shoulders pattern, key EMA levels, and psychological targets pointing higher, the GBP/USD remains an attractive focus for Forex market participants in the coming sessions.
