A stronger-than-expected U.S. labor market report bolstered the USD's performance heading into the weekend.  Following the announcement that the U.S. added 199,000 non-farm jobs in November, surpassing the market's projection of 180,000 and showing a significant increase from October's 150,000, GBP/USD exchange rate dropped by two-thirds of a percent.

The USD gained ground as market expectations for the first U.S. Federal Reserve rate cut in 2024 diminished, leading to support for bond yields.  Contrary to expectations of an unchanged figure, the unemployment rate decreased from 3.9% to 3.7%.  In order for the Federal Reserve to contemplate reducing interest rates in the upcoming months, policymakers will probably need to observe an increase in the unemployment rate, as this signals a relaxation in labor market conditions.

However, the employment market is currently constrained, and there are also unexpected developments in wages: average hourly earnings experienced a 0.4% month-on-month increase in November, surpassing the anticipated 0.3% and accelerating from October's 0.2%.

The Federal Reserve may express concern that the tight labor market is keeping wage levels elevated, thereby ensuring that inflation remains above the 2.0% target for an extended period.

The data will reinforce the Federal Reserve's communication that interest rates need to remain elevated for an extended period, providing support to U.S. yields and the USD. While the data doesn't indicate any significant change to be anticipated from the Fed, it is sufficient to affirm that the recent upward trend in the GBP/USD pair has come to an end, at least for the time being.