Sterling’s rally stalls as US jobs data reopens Fed debate

The Pound Sterling experienced a decline of 0.09% against the US Dollar following the release of the US Nonfarm Payrolls data for August. The figures exceeded expectations, with 162K jobs added, surpassing the forecasted 56K jobs. This news reignited debates surrounding the Federal Reserve's (Fed) decision-making process. Fed Chair Jerome Powell reiterated that the labor market is "consistent with full employment," echoing comments made by former Fed Chair Kevin Warsh at the Jackson Hole event.

The US Nonfarm Payrolls report came in at 162K, a significant improvement from July's 21K. The Unemployment Rate remained steady at 4.1%. The data provided Fed officials with reassurance that raising interest rates would not negatively impact the labor market. Last week, Fed Chair Kevin Warsh had highlighted the labor market's strength, prioritizing inflation control.

Subsequently, Cleveland Fed President Beth Hammack suggested that "policy is not restrictive, and inflation is too high," advocating for an interest rate hike to curb inflation. Money market analysts now estimate a 61% probability of a Fed rate increase in September, up from 54% the previous day. The US Dollar Index (DXY), which measures the performance of the American currency against six peers, rose 0.18% to 99.17.

In the coming week, traders will monitor various economic indicators, including US Price Index (PPI), Consumer Price Index (CPI), jobless claims, the US Monthly Budget Statement, and the University of Michigan Consumer Sentiment for September. The Bank of England (BoE) Chief Economist Huw Pill suggested that raising interest rates now could diminish the likelihood of the central bank needing to be more aggressive in future inflation-taming measures.

Speculators anticipate two rate hikes from the BoE within the next six months. For the September meeting, economists expect interest rates to remain unchanged. The UK market will focus on Retail Sales and Gross Domestic Product (GDP) figures for July. On the daily GBP/USD chart, the currency pair remains near a cluster of former trend-line resistances turned support around 1.3476-1.3375, while being capped by a simple moving average trio at approximately 1.3455 as immediate overhead resistance.

The 14-period Relative Strength Index stands close to 50, indicating neutral momentum and suggesting that a sustained break from this moving average barrier would be necessary to revive a stronger bullish extension. The first resistance level lies around the simple moving average cluster near 1.3455, with a daily close above this area potentially opening the path towards the next structural cap at the upward trend-line break level at 1.3657.

Conversely, support is expected at the recent trend-line pivot near 1.3476, with further downward pressure anticipated at the rising trend-line base around 1.3425 and the lower former resistance line near 1.3375.