GBP/USD fell to levels not seen in two years due to recession fears and pre-NFP instability

The U.S. labor market report for August is the most crucial report of the month. After hitting a two-year low the day before, the British pound stabilized in the 1.1540-1.1550 region throughout Friday's Asian session. Despite impending recessionary fears in the UK, the Cable pair typifies the typical pre-NFP fluctuations.

As Bloomberg reports, "the United Kingdom is already in a recession, and inflation is likely to reach 14% later this year," citing BCC data. Unless the next prime minister takes "urgent" action to decrease skyrocketing energy bills, a coalition of groups called "End Fuel Poverty" has warned that the number of UK families in fuel poverty would more than double in January, to at least 12 million.

British Foreign Minister and potential future Prime Minister Liz Truss recently stated in a late Wednesday Sun article that she will provide "immediate support" to ensure that households do not incur excessive heating costs this winter.

In addition to high US Treasury yields, improved US data and hawkish Fed predictions acted as a drag on the GBP/USD exchange market.

President of the Atlanta Fed, Raphael Bostic, meanwhile, has said that the Fed still has a "long way" to go before inflation reaches 2%. As other conservative US central bankers have said, "Restoring price stability is our top aim," so has Lory Logan, the recently appointed president of the Dallas Fed.

The statistics for August showed that the US ISM Manufacturing PMI came in at 52.8, beating market expectations of 52.0. As a plus, the final S&P Manufacturing PMI index for August was 51.5, up from 52.2 in July and above the consensus estimate of 51. Similarly, the number of initial claims for unemployment insurance in the United States fell to 232k from 248k in the prior week and 237k the week before that. In addition, during the second quarter (Q2), Unit Labor Cost climbed by 10.2% QoQ, which was somewhat higher than the predicted growth of 10.7%; nevertheless, Labor Productivity fell by 4.1% QoQ, which was lower than the expected decline of 4.5% and the decrease of -4.7% in the first quarter.

Despite a mixed day on Wall Street, 10-year US Treasury rates rose to their highest levels since late June. And most significantly, the two-year equivalent hit a 15-year high. The CME's FedWatch Tool now predicts a 72% chance of a rate hike of 75 basis points in September, up from about 69% previously.

On the other hand, the Bank of England's (BOE) Decision Maker Panel survey of CFOs showed on Thursday that British companies' expectations for CPI inflation rose in August. Also, as reported by Reuters, a monthly survey by Citi and YouGov revealed on Wednesday that British people' expectations for average inflation over the next five to ten years skyrocketed to a record-high 4.8% in August, well over the Bank of England's inflation aim of 2%.

Expectations for August's Nonfarm Payrolls (NFP) and Unemployment Rate reports have dropped from 528K and 3.5%, respectively, to 300K and 3.5%, which is likely to cause worry in the markets. If the jobs report shows improved numbers, the possibility of future US dollar strength cannot be ruled out.