Fed Rate Cut Expectations Collapse After Weak NFP Sends GBP/USD Tumbling Below 1.3450

Market Shifts Gears on January Rate Cut Odds

The British Pound suffered a sharp retreat on Friday as traders digested disappointing employment data from the US. GBP/USD tumbled to 1.3412, erasing gains from earlier in the session when it had climbed to 1.3451. The culprit? Softer-than-expected jobs numbers that essentially killed off any lingering Fed rate cut expectations for January.

The NFP Letdown That Changed Everything

December’s Nonfarm Payrolls delivered a mixed bag that ultimately disappointed markets. Job creation came in at just 50,000—well below both the 60,000 forecast and November’s 64,000 print. On the brighter side, unemployment ticked down to 4.4% from 4.6%, beating the expected 4.5% reading. This conflicting signal left traders with a clear takeaway: the labor market is moving sideways.

The reaction was immediate and brutal for those betting on January rate cuts. Odds for a Fed move plummeted from roughly 29% down to a mere 5%, effectively pricing out any easing in the near term. Federal Reserve policymakers had already painted a picture of a stable but stagnant employment situation, and this data confirmed that narrative perfectly.

Housing Weakness Adds to the Gloom

The disappointment didn’t stop with employment. October’s Building Permits contracted by 0.2%, slipping to 1.412 million from 1.415 million the prior month. Housing Starts painted an even grimmer picture, sliding 4.6% to 1.246 million versus 1.306 million in September.

Consumer sentiment offered a marginal bright spot with Michigan’s preliminary January reading at 54, slightly exceeding the 53.5 forecast. However, inflation expectations showed some concerning movement—the one-year outlook held steady at 4.2%, while the five-year view edged up from 3.2% to 3.4%.

Where Does GBP/USD Go From Here?

Technically speaking, the pair faces critical support at the 200-day Simple Moving Average around 1.3384. A break below this level could trigger a cascade toward the 50-day SMA at 1.3288, with 1.3200 representing a deeper floor if momentum accelerates further. Conversely, bulls would need to reclaim 1.3450 to shift the narrative, with 1.3500 representing the next ceiling if buying pressure builds.

What’s Next for Sterling?

UK traders face a relatively quiet week ahead, but the calendar is about to get busy. Watch for December’s BRC Like-For-Like Retail Sales, fresh employment data, and the latest GDP figures in the coming days—any of these could reignite Sterling volatility depending on how they compare to expectations.