GBP/USD dips after weak employment data

The British pound dropped 0.30% after today’s UK employment report but has recovered most of these losses. In the European session, GBP/USD is trading at 1.2452, up 0.05%.

UK job growth slides, unemployment rises

The UK employment report was weaker than expected. Job growth took a hard hit in the three months to February as the economy shed 156,000 jobs, following a 21,000 decline in the previous period. The market forecast of 110,000 new jobs was nowhere near the mark. As well, the unemployment rate rose to 4.2% in the three months to February, up from 4% in the period through January, the highest level since mid-2023.

The soft job numbers show that the labor market has cooled down due to the Bank of England’s prolonged rate policy of “higher for longer”, which has kept the cash rate of 5.25%. However, the employment report also indicated that pay growth remains stubbornly high, as it ticked lower to 6.0% in the three months to February, compared to 6.1% in the previous period.

This puts the BoE in a bind, as the labor market is cooling but wage growth, a driver of inflation, remains sticky. The BoE is under pressure to help provide relief to the private sector by lowering rates but is concerned that inflation could rebound if it moves to early.

The markets expect the BoE to pause at the May meeting with June a possible date for a first rate cut. The BoE decision will be dependent on the data and Wednesday’s inflation report will be part of that decision. Inflation is expected to have dropped to 3.1% y/y in March, down from 3.4% in February.

GBP/USD Technical

• GBP/USD tested support at 1.2421 earlier. Below, there is support at 1.2397
• There is resistance at 1.2460 and 1.2484

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