Pound-to-Dollar Rate Dips on Solid Non-farm Report

🎯 GBP/USD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.

Dollar benefits as markets push back the timing of the next Fed rate cut.

The pound to dollar exchange rate dropped to 1.3610 in the minutes following news of a solid U.S. labour market report for January that effectively eliminates a June interest rate reduction at the Federal Reserve.

U.S. non-farm payrolls rose 130K in January, a comfortable beat of expectations for 65K. However, the so-called whisper number that traders were leaning on was for a significantly lower read of approximately 45K.

So this is a comfortable consensus-beater and the initial dollar selloff is entirely expected.

"The January 2026 Nonfarm Payrolls report delivered a stunning upside surprise," says Kevin Ford, analyst at Convera. "The unexpected strength in the monthly data caught investors off guard, sparking a rally in both the US Dollar and the Treasury yield curve."

Another positive surprise was the U.S. unemployment rate coming in at 4.3% as employed people rose 528k according to the household survey, which was below the estimate for 4.4%.

And average hourly earnings rose 0.4% m/m, which was better than the estimate of 0.3%.

The market responded by pushing back the timing of the next interest rate reduction, with money markets showing traders are erring on July, whereas the June meeting was previously 'fully priced'.

The dollar will find support on these developments, particularly given the scale of the selloff it has experienced in 2026 that leaves the market particularly stretched in the sell direction.

"We suspect that market participants are using this morning’s NFP number to reassess the next move for the greenback. A strong number will repivot the market to trade the Fed narrative – that US fundamentals remain strong enough for the Fed to delay interest rate cuts," says Sarah Ying, a strategist at CIBC Capital Markets.

Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole, says if the U.S. labour market continues to stabilise from here, the U.S. rates markets could be guilty of pricing in overly aggressive Fed easing ahead.

"A lot of Fed-related negatives are already in the price of the USD, in our view. Positive data surprises could thus have greater FX market impact than any disappointments and we expect the USD to consolidate in the absence of any notable labour market weakness today," he adds.

🎯 GBP/USD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.