FX.co ★ GBP/USD

The GBP/USD pairs recent rally came to an abrupt end on Tuesday, as it failed to hold onto its gains, retreating from its four-week high near 1.3550 and ending a two-day winning streak. The pair has since resumed its downward trajectory, trading near the 1.3500 level. This reversal in momentum was largely driven by a renewed focus on the US dollar, which experienced a period of short-covering despite fundamentally bearish news. The catalyst for the dollars recovery was the preliminary annual benchmark revision to US nonfarm payrolls (NFP) data, which revealed that the US economy added nearly 900,000 fewer jobs between March 2024 and March 2025 than previously reported. This downward revision of 0.6% is a major blow to the narrative of a resilient US economy and strongly reinforces the case for a Federal Reserve rate cut. The reason this fundamentally negative news led to a dollar recovery is that the market had already priced in a significant amount of US dollar weakness. The release of the revision, which confirmed a slowing labor market, triggered a wave of short-covering as traders unwound their crowded short positions, temporarily boosting the greenback. The NFP report, which is a monthly survey of approximately 120,000 private businesses, is subject to constant revisions. The US Bureau of Labor Statistics (BLS) uses the more accurate Quarterly Census of Employment and Wages (QCEW), which covers 95% of active US businesses, to conduct its main annual revisions. The current revision window does not even capture the full impact of a post-tariff economy, and data watchers are anticipating further downward revisions to job growth in 2025. This underscores the growing concern that the US economy may be bottoming out.

According to the CME FedWatch Tool, interest rate markets have already factored in an almost certain 25-basis-point rate cut at the Federal Reserves September 17 meeting. Some more aggressive traders are even pricing in a greater than 17% chance of a 50-basis-point cut. However, the Feds decision is not without its complexities. While the weak jobs data points toward a rate cut, upcoming inflation data could complicate the picture. The latest US Consumer Price Index (CPI) report, due out on Thursday, is expected to show that inflationary pressures remain well above the Feds 2% annual target. This puts the central bank in a difficult position, as it must balance its dual mandate of achieving both maximum employment and price stability. Cutting interest rates too quickly could risk stoking inflation, regardless of where the key interest rate stands relative to the natural rate. In the absence of any major UK economic data this week, the GBP/USD pairs price action will be almost entirely dominated by these US developments. The upcoming inflation data on Thursday will be the next major catalyst to determine whether the pair can find a new direction or if it will remain in its recent downward trajectory.