Pound Tumbles to Two-Week Low as US Jobs Data Lifts Dollar

The British pound has weakened to near $1.35, its lowest level in two weeks, as strong US employment data boosted the dollar and increased expectations of tighter Federal Reserve policy.

US nonfarm payrolls rose by a significantly higher-than-expected 162,000 in August, exceeding projections of a gain of just 56,000. This has led markets to price in a near 58% probability of a Fed rate hike this month.

The Bank of England is now fully pricing in a rate hike by the end of the year and another increase expected by March 2027. However, policymakers are widely expected to leave rates unchanged at their September meeting as they adopt a wait-and-see approach to assess the impact of the Middle East conflict on energy prices and inflation.

Bank of England Chief Economist Huw Pill stated that raising interest rates now could reduce the risk of the central bank having to tighten policy more aggressively later to contain inflation.