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The GBP/USD pair showed resilience, trading 17% up, steadily at 1.3654 despite a robust US jobs report and lingering doubts about UK fiscal policy under Chancellor Rachel Reeves. Strong US job growth reduced expectations for Federal Reserve rate cuts, boosting the dollar. Meanwhile, political pressures in the UK, particularly around Reeves’ budget plans, capped Sterling’s gains, contributing to market volatility. This article argues that while US economic strength supports a steady GBP/USD, UK fiscal uncertainty risks further downward pressure, necessitating clearer policy signals to stabilize Sterling.
US Jobs Data Bolsters the Dollar
The US economy added 149,000 jobs in June, surpassing estimates of 110,000, with the unemployment rate dropping to 4.1% from 4.2%. This solid jobs report, coupled with Federal Reserve Chair Jerome Powell’s cautious stance on rate cuts, led markets to scale back expectations for a 50-basis-point cut in July, down from 65 basis points earlier. Consequently, US Treasury 10-year yields rose to 4.336%, up five basis points, and the US Dollar Index (DXY) hit a four-day high of 97.42 before settling at 97.10, up 0.34%.
Additional data reinforced US economic strength. Initial Jobless Claims for the week ending June 28 came in at 233,000, below the forecasted 240,000, and the Services PMI rose to 50.8 in June from 49.9, signaling expansion. These figures underscore a robust US economy, strengthening the dollar and pressuring GBP/USD.
UK Fiscal Jitters Weigh on Sterling
In the UK, political uncertainty surrounding Chancellor Rachel Reeves has constrained Sterling’s performance. Prime Minister Keir Starmer’s decision to avoid significant spending cuts, amid parliamentary debates, has left a gap in public finances. Speculation about Reeves’ potential replacement triggered a sharp rise in Gilt yields by over 25 basis points, pushing GBP/USD to a six-day low of 1.3562. This fiscal ambiguity has undermined investor confidence, limiting Sterling’s ability to capitalize on its recent highs near 1.3750–1.3790.
Opponents of Reeves’ approach argue that fiscal consolidation is necessary to maintain market trust, but Starmer’s reluctance to endorse cuts risks prolonging uncertainty. The Bank of England’s cautious monetary stance further complicates Sterling’s outlook, with no immediate rate adjustments signaled.
GBP/USD Technical Outlook
The GBP/USD pair dipped below 1.3600 but recovered, lacking momentum to challenge weekly highs near 1.3750–1.3790. The UK’s fiscal challenges hinder buyers from testing yearly highs around 1.3800. Support lies at the 20-day Simple Moving Average (SMA) of 1.3610, with a breach exposing the six-day low of 1.3562 and the 50-day SMA at 1.3462. Continued US economic strength and UK fiscal uncertainty could tilt the pair toward these support levels.
Path to Stability
The GBP/USD’s stability hinges on clearer signals from both sides. The Federal Reserve’s data-driven approach, as emphasized by Powell, suggests rates will hold steady, supporting the dollar. In the UK, Starmer and Reeves must address fiscal concerns to restore investor confidence, potentially through a transparent budget plan. Without decisive action, Sterling risks further declines, especially if US data continues to outperform. International markets, already rattled by Middle East tensions, would benefit from coordinated policy clarity to curb volatility.
