British Pound softens as US Dollar gains despite easing Fed rate hike odds

The British Pound (GBP) weakened as the US Dollar (USD) strengthened after Fed rate hike odds were scaled back due to weak US employment data. Market participants now anticipate a 77.9% probability of the Fed leaving interest rates unchanged at its October meeting, up from 74% prior to the jobs report. Weak US Nonfarm Payrolls data showed only a 29,000 increase in September, falling short of expectations.

The US unemployment rate also rose to 4.2% from the revised August gain of 133,000. On the UK side, the Bank of England (BoE) policy rate hike expectations have decreased by around 30 basis points, with roughly 90 basis points of tightening through 2027. Analysts at MUFG raised their Q3 growth forecast to 0.4% from 0.1% due to improved growth prospects.

The GBP/USD pair traded at 1.3240, holding below both the nine-period Exponential Moving Averages and the 14-day RSI near 35, indicating lingering downside pressure. The Fed speech on Wednesday scored 9.2/10 on the FXS Speechtracker, signaling hawkishness. With stronger economic expansion, a balanced labor market, and a commitment to price stability, the Dollar is likely to benefit from more aggressive Fed action, while the Pound Sterling faces headwinds.