Federal Reserve Governor Christopher Waller's openness to holding rates steady at the September meeting has cooled hike bets, lifting GBP/USD ahead of Friday's non-farm payrolls report. The payrolls print will determine whether the pound's gains hold or reverse as traders reassess the Fed's policy path.
Federal Reserve Governor Christopher Waller's openness to leaving interest rates unchanged at the September meeting has cooled bets on another hike, lifting the pound against the dollar as traders reposition ahead of Friday's non-farm payrolls report. The dovish-leaning remarks mark a shift in the Fed's forward guidance after weeks of hawkish commentary had pushed the greenback higher.
"My decision on the appropriate path for policy will depend on the data," Waller said Wednesday, signaling he would support holding rates steady as long as inflation continues its descent toward the Fed's 2 percent target. The comments helped spark a Treasury rally, easing rate-hike expectations that had built through August.
The repricing rippled across markets. U.S. government bonds rallied as traders trimmed bets on additional tightening, while the dollar softened against major peers. Sterling, which had been pressured by the widening rate differential between the Federal Reserve and the Bank of England, gained ground as the prospect of a Fed hold narrowed that gap.
The stakes are now concentrated in Friday's payrolls print. A strong reading would revive the case for another hike and could unwind the pound's gains, while a soft number would reinforce Waller's hold bias and extend the dollar's slide. "The NFP report is the swing factor," one strategist said. "It will determine whether this is a one-day repricing or the start of a sustained shift in Fed expectations."
The September meeting has become the focal point for rate markets. Waller's comments suggest the committee is weighing whether the recent cooling in inflation is durable enough to pause, even as the labor market remains resilient. The last time the Fed signaled a willingness to hold in the face of sticky price pressures, the dollar weakened for several weeks before data forced a reassessment.
For the pound, the near-term path hinges on the same data. If payrolls come in soft, GBP/USD could extend its advance as markets price a longer Fed pause. If the report surprises to the upside, the pair faces renewed downside pressure as hike bets return. The Bank of England's own policy trajectory adds a second layer of uncertainty, with traders watching for any divergence in how the two central banks respond to the same global inflation picture.
Friday's data will set the tone for both currencies into the September policy decisions. Until then, Waller's dovish shift has handed the pound a reprieve — but one that rests on a single payrolls report.
This article is for informational purposes only and does not constitute investment advice.
