Pound Drops Below 1.3400 as Strong US Nonfarm Payrolls Revive Fed Rate Hike Bets

Boosted by strong US nonfarm payrolls data, the dollar regained upward momentum, putting significant pressure on the pound against the dollar on Friday. The pair broke below the 1.34 level during the session and is currently trading near 1.3362. The jobs report showed the US labor market remains solid, providing room for the Federal Reserve to further tighten monetary policy, with market rate hike expectations quickly heating up.

**Nonfarm Payrolls Beat Expectations, Rate Hike Bets Revived**

The latest nonfarm payrolls report delivered strong results, with job additions significantly exceeding market consensus forecasts. According to CME FedWatch data, futures market bets on Fed rate hikes surged rapidly after the data release, with the probability of a hike reaching 71.8% at one point. Markets now expect the target rate range to be raised by at least 25 basis points by December at the latest. This shift in expectations directly lifted the dollar and placed heavy pressure on major non-USD currencies such as the pound.

**Treasury Yields and Dollar Rise Together, Pound Under Pressure**

The revival of rate hike expectations triggered a ripple effect in fixed-income markets, with the 10-year US Treasury yield jumping back above 4.50%, further strengthening the dollar's yield advantage. The dollar strengthened accordingly, and the pound against the dollar slid from around the intraday high of 1.3463, falling nearly 0.6%. Although market expectations for a Fed rate hike in October had previously retreated to 28%, the latest jobs data almost completely reversed that dovish outlook.

**Markets Focus on Upcoming Inflation and Policy Signals**

Looking ahead, investor attention will turn to upcoming US inflation data for further clues on the Fed's policy path. Markets broadly expect the CPI annual rate to remain elevated. Bank of America strategists have previously warned that, based on historical data, when the unemployment rate falls below the year-over-year CPI increase, markets often face severe challenges. If subsequent inflation data remains stubborn, the dollar's strong stance may be difficult to reverse easily, and non-USD currencies such as the pound could continue to face pressure in lower ranges.