Sterling was mixed against major currencies in late European trading on Tuesday. Against the US Dollar, GBP/USD recovered part of earlier losses but was still down 0.15% near 1.3510 after UK jobs data.
The UK ILO unemployment rate fell to 4.9%, versus expectations of 5.2%. Job gains were 25K in the three months to February, down from 84K previously.
Uk Labor Market Update
Average Earnings Excluding Bonuses rose 3.6% year-on-year, compared with forecasts of 3.5%. This was lower than 3.8% in the three months to January.
These data supported market pricing for the Bank of England to keep rates at 3.75% at its 30 April meeting. Further direction is expected from the UK CPI release on Wednesday, with headline inflation forecast at 3.3% year-on-year, up from 3%.
The US Dollar Index was up almost 0.2% near 98.20 before a 14:00 GMT confirmation hearing for Kevin Warsh as the next Federal Reserve chair nominee. His past record included support for a strong Dollar and opposition to quantitative easing, while the policy backdrop includes President Donald Trump’s calls for lower rates.
Looking back at this time in 2025, we recall the mixed signals from the UK labor market. While unemployment fell, wage growth was cooling and job creation slowed, leaving the Bank of England’s path uncertain. This created a cautious environment for the pound, which was hovering around the 1.35 level against the dollar.
April 2026 Market Backdrop
The situation today in April 2026 is far more focused on persistent inflation. The UK’s latest Consumer Price Index for March 2026 came in at 4.1%, significantly above the BoE’s target and higher than the 3.3% acceleration we were anticipating this time last year. With the BoE base rate now at 4.5%, traders should be using interest rate swaps to hedge against the growing market consensus for at least one more rate hike this summer.
On the other side of the pair, the uncertainty surrounding the US Federal Reserve’s direction has also changed. Last year, we were waiting for Kevin Warsh’s confirmation hearing, but now we see the Fed Funds Rate sitting firmly at 5.0% after a series of hikes to combat inflation. Recent strong Non-Farm Payroll data, which added over 250,000 jobs last month, reinforces that the Fed is unlikely to consider cuts anytime soon.
This clearer, more hawkish stance from both central banks compared to 2025 changes the dynamic for GBP/USD, which now trades closer to 1.2950. Implied volatility in one-month options contracts has settled lower, from the elevated levels seen during last year’s uncertainty, to around 7.5%. We believe traders should consider selling volatility through strategies like short strangles to collect premium, assuming no major geopolitical shocks.
Given that both the BoE and Fed are expected to hold rates high, the focus shifts to which central bank will be forced to act first. We are seeing increased activity in options that bet on policy divergence later in the year. Traders should therefore position for a potential breakout in the pair by using long-dated call or put options, depending on their view of whether UK or US economic data will weaken first.
