GBP/USD shrugs as UK unemployment rises, GDP next

The British pound is drifting on Tuesday. GBP/USD is trading at 1.2720 in the European session at the time of writing, down 0.08% on the day. The UK released the May employment report earlier today. Next up is GDP on Wednesday, with a market estimate of 0% m/m for April, following a 0.4% gain in March.

UK labor market continues to cool down

Today’s UK employment report indicated that the labor market continues to cool down, with a notable rise in unemployment. Claimants for unemployment benefits jumped by 50.4 thousand in May, up sharply from a revised 8.4 thousand increase in April and higher than the market estimate of 10.2 thousand. The unemployment rate ticked up to 4.4% in the three months to April, up from 4.3% in the previous period and the market estimate of 4.3%.

Job growth continued to slow, falling by 139,000. Wage growth in the private sector, a key gauge for the central bank, fell to 5.8%, its lowest level since mid-2022. The drop in wage growth was impressive as the government hiked the minimum wage by 9.8% in April and there were concerns that sharp increase would send wage growth higher.

The job numbers will be a relief for the Bank of England, which needs to see a weaker labor market in order to start lowering rates. There won’t be a rate cut at the next meeting in June due to the national election on July 4th. The markets have fully priced a quarter-point cut by November and the employment report has raised the likelihood of a second cut before the end of the year to 40%, up from 20% on Monday, prior to the employment report.

During the election campaign, BoE policy makers have cancelled all speeches and public appearances, which means there won’t be any feedback from the BoE about today’s inflation report and other key data over the next several weeks.

GBP/USD Technical

• GBP/USD is putting pressure on resistance at 1.2745. Above, there is resistance at 1.2795
• 1.2671 and 1.2621 are providing support

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