GBP/USD reverses gains ahead of US inflation figures

• GBP/USD briefly tested a four-week high on Tuesday.
• Crumbling US jobs revisions bolstered the US Dollar as Fed rate cut bets rise.
• A last round of US inflation data is due before the Fed's rate call next week.

GBP/USD briefly touched a four-week peak on Tuesday, testing chart territory north of 1.3550 before getting dragged back into the low side, snapping a two-day winstreak and putting Cable back on track for a decline to the 1.3500 handle.

The economic calendar remains functionally free of United Kingdom (UK) data this week, leaving US inflation figures in the driver's seat as investors reel from a shocking decline in United States (US) labor market data that continues to get revised even lower.

Markets are growing increasingly concerned that the bottom could be falling out from beneath the US economy. The latest annual adjustment to Nonfarm Payrolls (NFP) showed that the US economy added nearly 900K fewer jobs than previously expected for the March 2024 to March 2025 annual period. Further downside revisions to 2025 employment creation should be expected by data watchers as the current revision window doesn't include any of the fallout of the post-tariff economy.

Withering US jobs bolster Fed rate cut bets

The NFP is an aggregate survey of around 120K private businesses within the US; the response rate frequently changes, and any businesses that cease operations within the response window are simply marked as non-respondents.

The Bureau of Labor Statistics (BLS) uses the Quarterly Census of Employment and Wages (QCEW) to do a large-scale adjustment to NFP data once per year. This data represents 95% of the business operators within the US and is a more accurate measure of labor, as it includes businesses that have either ceased operations or gone out of business. Even now, the "final" benchmark revision for the current review period isn't expected until next February.

According to the CME's FedWatch Tool, rate markets have assumed a 25 bps interest rate cut on September 17 is now a foregone conclusion. Some particularly cut-happy rate traders are also pricing in over 17% odds that the Fed will get bullied, either by data or political pressure, into delivering a 50 bps rate cut next week.

The latest batch of US Consumer Price Index (CPI) inflation, due on Thursday, is expected to show that inflationary price pressure is still coasting well above the Fed's 2% annual target. This makes it difficult for the Fed to deliver interest rate cuts at too fast of a pitch, regardless of how far policy rates may or may not be above r-star, or the natural rate of interest.

GBP/USD daily chart