British pound hits three-week high as weak US jobs data weighs on dollar

The British pound extended its rally against the US dollar on Tuesday, trading near $1.34 and touching its highest level in three weeks as markets continued to scale back expectations for a Federal Reserve interest rate hike following a disappointing June employment report.

Dollar Weakness Drives the Move

The GBP/USD pair has risen for nine consecutive sessions, a streak fueled almost entirely by broad dollar weakness rather than domestic UK strength. The catalyst arrived last week when the Bureau of Labor Statistics reported that US nonfarm payrolls rose by just 57,000 in June — roughly half of the 115,000 consensus forecast — while prior months were revised lower by a combined 74,000 jobs. The labor force participation rate slumped to 61.5%, a five-year low, as approximately 720,000 people exited the workforce.reuters+2

The data prompted traders to cut the implied probability of a Fed rate hike at the July 28-29 meeting to roughly one in four, down from nearly 40% before the report, according to Reuters. Markets still price in a rate increase by September at about 60% odds.reuters+2

Mixed Signals from Policymakers

The pullback in hike expectations sits uneasily alongside hawkish commentary from Fed Governor Christopher Waller. Speaking at a Bank of Italy conference in Rome on Monday, Waller said risks facing the US economy have "completely flipped" in the past year, with inflation now the primary concern while the labor market appears to be stabilizing. He did not specify a preferred policy path but described forward guidance as something that "needs to be flexible".reuters+2

On the UK side, the Bank of England London Stock Exchange held its benchmark rate at 3.75% in June by a 7-2 vote, with policymakers citing continued uncertainty from global conflicts. The next rate decision is scheduled for July 30. BoE policymaker Catherine Mann said last week she would be prepared to vote for a hike if inflation expectations deteriorate further.tradingeconomics+3

Technical Picture

From a technical standpoint, sterling's approach toward the 200-day exponential moving average near 1.3400 represents a key test. Data from Wise showed GBP/USD reached as high as 1.3397 during the week ending July 7, while Investing.com listed the pair at 1.3392. Whether the pound can sustain gains above this level may depend on upcoming US inflation data and any further shifts in Fed rhetoric ahead of the July meeting.wise+1