British Pound Strengthens as Weak US Jobs Data Pressures Dollar

The British pound and the euro both advanced against the U.S. dollar on Monday, extending gains as markets continued to react to last Friday's weak U.S. non-farm payrolls report. The data has solidified investor expectations that the Federal Reserve will likely keep interest rates unchanged through the end of the year.

As of 4:25 AM ET, the GBP/USD currency pair traded 0.07% higher at $1.3503, while the EUR/USD was up 0.05% at $1.1565.

Dollar Pressured by Dovish Fed Bets

The dollar's weakness follows a U.S. employment report that showed a loss of 20,000 jobs, compounded by downward revisions of over 100,000 to previous months. This brought the three-month average for job growth to a mere 20,000, according to an analysis by ING.

"Last Friday's first test was a decidedly dovish one and a negative for the dollar," said Francesco Pesole, a foreign exchange strategist at ING, in a note on Monday. He added that while markets have already adjusted, there is still "plenty of room for more dovish repricing, which should weigh on the dollar."

Market Outlook and Key Data Ahead

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Traders are now pricing in 11 basis points of Federal Reserve rate cuts by September and 28 basis points by December, according to ING. The firm's baseline scenario remains that the Fed will not hike rates this year, maintaining a bearish outlook on the dollar.

The next major catalyst for the market will be the U.S. Consumer Price Index (CPI) data, scheduled for release on Wednesday. ING forecasts a month-over-month CPI increase of 0.1%, below the market consensus of 0.2%. A softer-than-expected inflation reading would further support the case for a weaker dollar, Pesole noted.

Sterling and Euro Dynamics

Analysts attributed Monday's gains in the pound and euro primarily to broad-based dollar weakness rather than domestic factors, with no significant economic data released in the U.K. or the Eurozone. Pesole described the euro's movement as "entirely dominated by the dollar direction" during a quiet period for European Central Bank (ECB) communication.

This contrasts with the ECB, which has made a "quasi-commitment" to a rate hike in September. According to ING, a soft U.S. CPI report on Wednesday could push the EUR/USD pair above the $1.160 level, with the next technical resistance seen at its 200-day moving average of $1.1630.