U.K. Labour Market Weakness

U.K. labour market weakness puts bearish pressure on GBPUSD

Yesterday, the British pound (GBP) rose above 1.2730 against the U.S. dollar (USD) but failed to hold above the level and finished the day essentially unchanged.

👉 Possible effects for traders

GBPUSD is currently near its one-month low as the U.S. Dollar Index (DXY) has recovered after a severe sell-off on 2 and 5 August. Additionally, a risk-off mentality may have started to return to the markets. The U.S. stock indices were down yesterday even though the market continued to expect aggressive rate cuts by the Federal Reserve (Fed).

Furthermore, yesterday’s survey from the U.K. Recruitment and Employment Confederation showed that the U.K. job market was slowing down, with wage growth easing. This data will influence the Bank of England's (BOE) decision on when to potentially lower interest rates. Currently, interest rate swap market data implies only a 32% chance of a 25-basis-point (bps) rate cut by the BOE in September. If the U.K. macroeconomic data—specifically, next week’s claimant count and inflation reports—show further signs of cooling, the market may begin to price in more rate cuts. This may push GBPUSD down, probably below 1.25150.

GBPUSD was essentially unchanged during the Asian and early European trading sessions. The main focus today is on the U.S. Jobless Claims report at 12:30 p.m. UTC. After last week's weaker-than-expected U.S. nonfarm payroll (NFP) report shocked the global financial market, investors and traders will closely watch the upcoming U.S. labour market data. A higher-than-expected rise in unemployment claims may reverse the bearish trend in GBPUSD and pull the pair above 1.27200. Conversely, lower-than-expected results will likely push GBPUSD below 1.26600.