GBP/USD fell on Thursday, setting up a potential test of Wednesday's flash 7-week low at 1.2615 as U.S. Treasury yields rose after below-forecast initial jobless claims bolstered the view that the Fed may be slower to begin cutting rates, narrowing U.S.-UK yield spreads and boosting the dollar.

With the lion's share of the post-PMI Treasury yield drop unwound, sterling bulls are turning cautious, curating positions, ahead of Friday's Jackson Hole speeches by Fed Chair Jerome Powell and ECB President Christine Lagarde.

U.S.
SOFR futures fell in the belly of the strip, pushing Fed rate cut expectations further out the curve, pricing the first full 25bp cut in June 2024, from March 2024 earlier in August.

Still, odds for a 25bp hike in Novemberthis year continue to hover near 50%.

Powell may choose to highlight the Fed's success bringing inflation down from 8.3% to 3.2% since last August's Jackson Hole appearance but also its continued vigilance in taming price growth.

However, with nearly a month and much data between now and the Sept. 20 rate announcement, Powell may also want to see more economic reports and keep his options open.

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