GBP/USD drifts higher above 1.3100, potential upside seems limited

• GBP/USD trades with mild gains to around 1.3130 in Monday’s Asian session. 
• The encouraging Nonfarm Payrolls could help limit the USD’s losses. 
• The dovish stance of the BoE might undermine the US Dollar. 

The GBP/USD pair posts modest gains to near 1.3130, snapping the three-day losing streak during the early Asian session on Monday. However, the upside of the major pair might be limited amid the reduced bets of the Federal Reserve interest rate cuts after the upbeat US Nonfarm Payrolls (NFP) on Friday. 

The Fed lowered its cutting cycle by 50 basis points (bps) in September but stronger-than-expected reduced the odds that the larger than “normal” cut will be repeated. According to the CME Fedwatch Tool, financial markets are now pricing in nearly 97.4% chance of 50 basis points (bps) Fed rate cuts in September, up from 31.1% before the NFP data. 

The NFP report showed the US economy adding 254K jobs in September versus 159K prior, better than estimations. The Average Hourly Earnings climbed to 3.8% from 3.6% during the same period. Finally, the Unemployment Rate ticks lower to 4.1% in September from 4.2% in August. 

The Pound Sterling (GBP) edges higher after the Bank of England (BoE) could take a more aggressive approach to lowering interest rates. Meanwhile, the BoEChief Economist Huw Pil stated that the UK central bank should move only gradually by cutting interest rates. Financial markets are more divided about whether the BoE will follow a rate cut in November with another in December. The BoE has not cut rates at consecutive meetings since 2020.