GBP/USD drops below 1.3400 ahead of UK labor data

• GBP/USD declines as traders adopt caution ahead of the United Kingdom’s employment data.
• The US Dollar appreciates amid rising odds of the Fed maintaining its interest rates in July.
• The recent UK inflation data boosts the chances of the BoE maintaining a restrictive monetary policy stance.

GBP/USD loses ground after registering gains in the previous session, trading around 1.3390 during the Asian hours on Thursday. Traders are awaiting the United Kingdom (UK) jobs report, which includes June’s Claimant Count Change and ILO Unemployment Rate for the three months to May, due later in the day.

The GBP/USD pair depreciates as the US Dollar (USD) gains ground due to rising odds of the Federal Reserve (Fed) maintaining its benchmark overnight interest rate unchanged in the 4.25%-4.50% range at its July policy meeting, driven by the hotter-than-expected June inflation figures from the United States (US).

Dallas Fed President Lorie Logan said on Tuesday that the Fed will probably need to leave interest rates where they are for a while longer to ensure inflation stays low in the face of upward pressure from the Trump administration's tariffs. Moreover, New York Fed President John Williams said late Wednesday that monetary policy is in the right place to allow the Fed to monitor the economy before taking its next decision.

The US Producer Price Index (PPI) was unexpectedly unchanged in June, against the market consensus of a 0.2% rise. Meanwhile, the core PPI rose by 2.6% YoY versus 3.0% prior, softer than the 2.7% expected. Traders will keep an eye on the US Retail Sales for June, followed by weekly Initial Jobless Claims and Philly Fed Manufacturing Index due later on Thursday.

The latest Fed Beige Book shows that while overall business activity remains healthy and inflation pressures are relatively subdued, underlying cost pressures are building, and business operators remain cautious.

The downside of the GBP/USD pair could be restrained as the hotter-than-expected UK inflation data reinforce the likelihood of the Bank of England (BoE) maintaining a restrictive monetary policy stance. However, the BoE may adopt a balancing act while discussing interest rates in the August monetary policy meeting amid escalating price pressures and cooling labor market conditions.