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Imo because they said you're still getting the offer letter at the end of the week, that's a good sign. Could be a genuine hold up, e.g. if someone's on leave or extra HR confirmation they hadn't thought of
Did you negotiate for a higher salary than listed? It could be that the budget approval needed to go through additional leadership before being finalized in offer letter. If they gave you an expected date for letter, that’s a good sign they understand the next steps and that the formal offer is coming.
Otherwise, the role could be put on hold and verbal offer rescinded if HR just received internal notice of a hiring freeze or layoff, or other budget reason for which they may have decided to cancel the role.
Are people really negotiating in this market? I've assumed that if you're more expensive than your competition, you have no chance
You should still receive an offer. No reason to be rescinded. Give it to end of week.
I would be doing a personal Gap Analysis or SWAT to Best understand what tasks the employer needs and how to communicate how you will fulfill the job requirements. Extol the virtues that you possess and have developed in your career of teamwork, analysis, problem solving, thinking outside the box examples that have helped you to success in the past. Share your methodologies used to properly assess and address these problems. How you are going to find the customers needs, as it is rarely as straightforward as the product specifications imply. I would search for any previous customer methodology that could help you to gain a leg-up on the competition.
Use the gap analysis data to determine where you lack.