Sterling Slumps as Strong Jobs Data Fuels Hawkish Fed Outlook

The Pound Sterling's rally against the US Dollar has stalled due to strong US jobs data and hawkish comments from Federal Reserve officials. The latest US inflation report reaffirmed that the labour market is consistent with full employment, according to Fed Chair Kevin Warsh.

The US Nonfarm Payrolls in August exceeded forecasts at 162K, beating July's print of 21K. The Unemployment Rate remained unchanged at 4.1%. This data has reassured Fed officials that they can raise interest rates without harming the labour market.

Cleveland Fed Beth Hammack recently noted that policy is not restrictive and inflation is too high, adding that contact views indicate now is the time for the Fed to hike to control inflation. As a result, money markets now assign a 61% probability of a rate increase by the Fed in September, up from 54% yesterday.

Meanwhile, Bank of England Chief Economist Huw Pill said raising rates now would reduce the chance the central bank would have to be more aggressive in future to tame inflation, which has picked up as a result of the war in Iran. Speculators expect the BoE to hike rates twice in six months.