Sterling Strength Peaks Ahead of Critical US Employment Report—Market Eyes Rate Path Implications

GBP/USD Rally Stalls Near Technical Resistance as Traders Digest UK Retail Surge

The Pound Sterling maintained its upward trajectory against the US Dollar on Friday, climbing to approximately 1.3470 as market participants recalibrated expectations ahead of August’s Nonfarm Payrolls (NFP) release. The rally was underpinned by surprise strength in UK consumer spending data, though momentum has begun to plateau near key technical levels.

UK Consumer Data Delivers Unexpected Boost

Friday’s retail landscape revealed encouraging signals for the British economy. The Office for National Statistics reported monthly Retail Sales expanded 0.6% in July—substantially exceeding the 0.2% consensus forecast. This outperformance follows a revised June figure of 0.3%, suggesting underlying consumer resilience despite broader economic headwinds.

On an annual basis, however, the picture proved more nuanced. Year-on-year Retail Sales climbed 1.1%, falling short of the 1.3% expectation, though this still represented an acceleration from June’s upwardly-revised 0.9% reading. The divergence between monthly strength and annual weakness underscores the uneven nature of consumer demand patterns.

Robust retail activity traditionally pressures central banks toward maintaining tighter monetary conditions, as sustained household spending can reignite inflationary pressures. Bank of England Governor Andrew Bailey has already signaled caution on the cutting trajectory, stating during his Wednesday testimony that “the path for rates will continue to be downwards, but there is considerably more doubt on how fast we can cut rates.” The BoE is widely anticipated to hold its benchmark rate at 4% in September’s policy decision.

Dollar Weakness Ahead of High-Impact Employment Data

The greenback suffered broad-based losses on Friday, with the US Dollar Index declining 0.25% to trade near 98.00. This weakness preceded the highly anticipated US employment report, set for release at 12:30 GMT, where economists project non-farm job creation of approximately 75,000—marginally above July’s revised 73,000 figure.

The unemployment rate faces upward pressure, with expectations pointing to 4.3% versus the prior 4.2%. Average Hourly Earnings, Wall Street’s preferred wage growth gauge, is forecast to decelerate to 3.7% year-over-year from July’s 3.9%, with monthly gains anticipated at 0.3%.

Market participants have substantially repriced Federal Reserve rate-cut odds following July’s disappointing payrolls report and recent commentary from FOMC members flagging escalating downside labor-market risks stemming from tariff uncertainty. The CME FedWatch tool now prices in near-certainty for a September rate reduction, a dramatic shift from earlier summer expectations. Thursday’s ADP Employment Change report reinforced signs of weakening private-sector hiring momentum.

Currency Performance Snapshot

The broader currency complex displayed modest swings, with the US Dollar registering losses across all major pairs. Sterling depreciated 0.38% against the greenback (though remaining near session highs), while the New Zealand Dollar proved most resilient, gaining 0.52% on a trade-weighted basis. The Australian Dollar strengthened 0.52%, and the Swiss Franc edged higher by 0.39%.

Technical Positioning: Sterling Caught Between Competing Levels

GBP/USD remains therapeutically anchored to its 20-day Exponential Moving Average (EMA) at 1.3470, the precise level where Friday’s session activity centered. The 14-day Relative Strength Index (RSI) oscillates within the neutral 40-60 band, confirming sideways consolidation rather than directional conviction.

The August 1 low of 1.3140 anchors support below current levels, while resistance congregates near the August 14 peak around 1.3600. Breakout confirmation in either direction will likely require fresh macro catalysts—the US NFP release and subsequent Fed rate guidance likely to serve as the immediate trigger for mean reversion toward one of these technical boundaries.

Looking Ahead: Rate Differentials and Tariff Uncertainty

Divergent monetary policy trajectories between the Federal Reserve and Bank of England will remain the primary driver for sterling valuation over coming weeks. A softer-than-expected US payrolls print would accelerate dollar depreciation and offer GBP/USD fresh upside momentum, while an outperformance could reignite safe-haven demand for the greenback.

Separately, ongoing litigation regarding US tariff authority—with the matter now escalated to the Supreme Court following Wednesday’s appeals court rejection of most Trump administration duties—introduces additional policy uncertainty that may influence risk appetite and currency positioning. Until this regulatory clarity emerges, sterling and other commodity-linked currencies may remain hostage to broader dollar-weakness cycles, limiting sustained rallies on sterling-specific fundamentals alone.