GBP/USD recovered about half of its early losses during European trade on Tuesday. Still, it was down 0.23% near 1.3600. The move followed weaker UK labour market data for the three months to December.
The UK ILO Unemployment Rate rose to 5.2%, the highest in five years, compared with forecasts of 5.1%. Job creation came in at 52K, down from 82K previously.
Uk Labour Market Signals Grow Worse
Average Earnings Excluding Bonuses eased to 4.2% YoY. This matched expectations and was down from 4.4% (revised from 4.5%). Average Earnings Including Bonuses fell to 4.2% from 4.6% in the three months to November.
Focus now shifts to the UK January CPI release on Wednesday. The US Dollar traded mostly steady ahead of the US market open after a long weekend.
GBP/USD was around 1.3594, below the 20-period EMA at 1.3624. The 14-period RSI was 42, below 50.
Resistance is seen near 1.3652. A descending trend line from 1.3907 also limits gains. Support sits near 1.3596, based on a rising trend line from 1.3366. If price closes below support, 1.3500 is the next level to watch.
Macro Divergence And Options Positioning
In early 2025, GBP/USD came under pressure near 1.3600 as the UK job market weakened. Unemployment reached a five-year high of 5.2%. This was an early sign of the economic strain that followed, and it showed how sensitive the pound was to signs of slower growth.
Those concerns have since played out. Data for January 2026 shows unemployment has edged up to 5.4%. Wage growth is also still running below inflation, which remains sticky at 3.1%. This leaves the Bank of England in a tough spot. It cannot easily cut rates to support growth while inflation stays above its 2% target.
The US picture looks stronger. The latest non-farm payrolls report showed job growth of 210,000. This supports the case for the Federal Reserve to keep rates steady. This policy gap continues to support the US dollar over the pound. Overall, the fundamentals still point to further downside in GBP/USD.
Based on this view, traders may consider buying GBP/USD put options to position for a decline in the coming weeks. Put options offer defined risk and can target a move toward the 1.2250 support area. This matters because the pair is now around 1.2410, well below the levels seen when these risks first appeared a year ago.
At the same time, the Bank of England faces competing goals: reducing inflation while avoiding a deep recession. This mix can lift volatility. One possible approach is to buy straddles ahead of major UK data releases or the next Bank of England meeting. A straddle can benefit from a large move in either direction, which may suit the current uncertainty.
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