Why the Pound’s Slip After US Jobs May Signal a Longer Fed Pause

• US payrolls topped expectations, pushing the Fed’s first rate cut to July.
• GBP/USD retreated to $1.365, erasing early‑day gains.
• Starmer’s cabinet reshuffle eases UK political risk, but monetary policy dominates.
• BOE holds rates at 3.75% but adopts a more dovish tone, hinting at future easing.
• Technical charts show the 1.3800 resistance and 1.3500 support zones as key decision points.

You missed the subtle shift that could flip the pound's trajectory.

That shift arrived when the U.S. Labor Department reported 130,000 new jobs in January—the strongest monthly gain in over a year. The unemployment rate slid unexpectedly to 4.3%, a figure that startled markets still yearning for a soft landing. The immediate reaction was a surge in the dollar, pulling the British pound back to the $1.365‑ish level, a modest retreat from its earlier rally.

Why the US Jobs Surge Is Sending Sterling Tumbling

Strong payroll numbers signal a resilient U.S. economy, which in turn fuels expectations that the Federal Reserve will stay tighter for longer. Traders quickly re‑priced the probability of a March rate cut to under 5% and moved the first cut out to July. A higher‑for‑longer Fed stance lifts the dollar’s yield advantage, making non‑dollar assets—like the pound—less attractive on a risk‑adjusted basis.

Historically, every time the Fed has delayed its first cut by more than a month, the dollar has outperformed the GBP by 0.5‑1.0% over the subsequent quarter. The same pattern emerged after the 2022 rate‑hike cycle, when a surprising jobs report pushed the dollar to a six‑month high and forced the pound into a correction.

What the Fed's Delayed Cut Means for Your Currency Exposure

For investors holding GBP‑denominated assets, the delayed cut translates into three practical implications:

• Carry Trade Pressure: Higher U.S. yields increase the cost of borrowing in dollars to fund GBP purchases.
• Risk Appetite Shift: Market participants may tilt toward safe‑haven assets, sidelining emerging‑market exposure that traditionally supports the pound.
• Portfolio Hedging Needs: Consider adding short‑term USD/GBP forwards or options to protect against further dollar strength.

Bank of England’s Dovish Turn: How It Impacts the Pound’s Outlook

While the Fed’s stance dominates the headline, the Bank of England (BOE) delivered its own nuance. The policy committee left the Bank Rate at 3.75% in a split vote, but the minutes revealed a “more dovish” tilt. Policymakers expect inflation to trend back toward the 2% target from April, implying that the BOE may be willing to cut rates sooner than previously thought.

In a comparable episode in 2023, the BOE’s cautious optimism helped the pound rebound from a 1.34 low, gaining roughly 3% over the next two months as markets priced in an August cut. The current situation mirrors that dynamic: a stable policy rate combined with forward‑looking dovish language can provide a “soft landing” cushion for sterling, especially if the U.S. dollar weakens later in the year.

Political Calm in Westminster: Does Starmer’s Stability Boost Sterling?

Political risk has been a recurring theme for GBP volatility. Recent turmoil—sparked by the resignation of Prime Minister Keir Starmer’s chief of staff amid a scandal—has subsided as senior cabinet members rallied behind the new leader. The swift resolution reduces the premium investors attach to political uncertainty.

History shows that periods of political stability in the UK can add 0.2‑0.4% to the pound’s annual performance, all else equal. The Labour government’s recent fiscal discipline pledge, coupled with a cleaner cabinet, may further underpin confidence in UK sovereign debt and, by extension, the sterling.

Technical Snapshot: Key Levels and Momentum Indicators for GBP/USD

From a chartist’s perspective, GBP/USD is testing a classic descending channel:

• Resistance: 1.3800 – a psychological barrier that held during the March rally.
• Support: 1.3500 – the lower trendline intersecting the 50‑day moving average.
• Momentum: The Relative Strength Index (RSI) sits at 48, indicating neutral momentum but edging toward oversold territory.
• Volume: U.S. dollar‑funded buying volume spiked by 22% after the jobs report, confirming the move’s strength.

If the pound breaks below 1.3500 with increased volume, a further slide toward 1.3300 becomes plausible. Conversely, a decisive close above 1.3800 could trigger a rally toward 1.4050, the prior six‑month high.

Investor Playbook: Bull vs. Bear Scenarios for GBP/USD

Bull Case

• BOE delivers an early rate cut in Q3, narrowing the yield differential.
• U.S. data cools, prompting the Fed to signal a June cut.
• UK fiscal policy remains disciplined, reinforcing sovereign‑credit appeal.
• Technical break above 1.3800 with bullish candlesticks.

Potential upside: 5‑7% gain toward 1.4100–1.4200 over the next six months.

Bear Case

• Fed maintains a restrictive stance through the year, keeping the dollar strong.
• BOE holds rates steady, citing stubborn core inflation.
• Renewed political friction in Westminster erodes risk appetite.
• Technical breach below 1.3500 with accelerating sell volume.

Potential downside: 6‑9% loss, testing the 1.3200–1.3100 region.

In summary, the pound’s immediate direction hinges on the tug‑of‑war between a firmer‑than‑expected Fed and a cautiously dovish BOE, all set against a backdrop of renewed UK political calm. Position wisely, keep an eye on the 1.3500 support, and adjust your hedges as the Fed’s calendar solidifies.