During the North American session on Thursday, GBP/USD fell by 0.07% after strong US economic data boosted the US Dollar. The pair is currently trading at 1.3408, close to a weekly low. The US jobs report revealed that unemployment claims dropped to 221K, which is lower than the expected 235K. Retail Sales for June increased by 0.6%, exceeding the forecast of a 0.1% rise. These strong numbers, along with rising consumer prices, make it less likely that the Federal Reserve will cut interest rates at the next meeting.

Fed Policy And Economic Signals

Fed Governor Adriana Kugler stated that it is appropriate to keep current policies unchanged because of low unemployment and price pressures from tariffs. In the UK, job data showed a slower decline, with a Claimant Count Change of 25.9K in June, which was above expectations. GBP/USD is still near the week’s lows after a brief rise to 1.3485. The Relative Strength Index indicates that sellers are in control, although there are more buyers at the 1.3400 level. To regain momentum, GBP needs to break above the 50-day SMA at 1.3500. If it doesn’t, further declines are expected towards 1.3373 or even lower. The Pound Sterling is a major global currency influenced by the Bank of England’s policies and economic updates. Given the strong US economic data, we think GBP/USD is likely to move downward in the short term. The latest US Non-Farm Payrolls report showed that 272,000 jobs were added, significantly beating expectations and highlighting a strong US economy. This strength reduces the chances of the Federal Reserve needing to cut interest rates soon.

Inflation And Trade Strategies

Governor Kugler’s comments suggest the Fed will maintain its current stance, and market expectations support this. The CME Group’s FedWatch Tool indicates less than a 15% chance of a rate cut at the next FOMC meeting. This suggests that dollar-denominated assets will continue to attract investors. In the UK, inflation is also a key issue and recently hit 2.0%, reaching the Bank of England’s target. However, services inflation remains high at 5.7%, likely preventing aggressive rate cuts. This divergence in policies—steady in the US and slower in the UK—will likely keep pressure on the Pound. For derivative traders, strategies that profit from a decline or limited rise in GBP/USD are wise. Buying put options with strike prices below the 1.3400 support level could effectively position traders for a potential decrease. Additionally, mixed economic signals could raise implied volatility, making long straddles or strangles appealing for those expecting big moves in either direction. Historically, times of strong US economic performance have led to lasting dollar strength against the Pound, as seen during 2014-2016 when GBP/USD fell from above 1.7000 to below 1.4000 before the Brexit vote. While we do not predict such a significant drop, it shows the potential for ongoing trends due to policy differences. We are closely monitoring the 50-day SMA at around 1.3500 as a key resistance level that is unlikely to break without a notable negative change in US data. A clear drop below the psychological level of 1.3400 would indicate strong seller control and open the way for movements towards 1.3373 and possibly lower. Create your live VT Markets account and start trading now.

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