GBP/USD recovered about half of its early losses during European trading on Tuesday. Still, it remained 0.23% lower near 1.3600. Earlier, it fell to 1.3551, near a two-week low, after weak UK labour data.
The UK Office for National Statistics said the ILO unemployment rate rose to 5.2% in the three months to December. That was up from 5.1% and the highest level in five years. Markets had expected 5.1%. Job gains also slowed, with 52K jobs added versus 82K previously.
Uk Labour Data Drives Sterling Weakness
The number of people claiming jobless benefits rose by 28.8K in January. Average Earnings Excluding Bonus increased 4.2%, down from 4.6%. Earnings including bonuses also rose 4.2%, down from 4.6%. This was the slowest wage growth in almost four years.
On Monday, the pair failed to close above the 20-day simple moving average near 1.3635. Traders are watching support near 1.3500, the 200-day SMA near 1.3440, and Fibonacci support around 1.3340.
Markets are also looking ahead to UK inflation data due on Wednesday. Sterling’s moves reflect expectations of a 25 bps Bank of England rate cut in March.
Based on this morning’s jobs report, we see a clear bearish signal for the British pound. Unemployment is now at a five-year high, and wage growth is cooling faster than expected. Together, these signals point to a slowing UK economy.
Rate Cut Expectations Pressure The Pound
These numbers strengthen our view that the Bank of England is likely to cut rates in March. Overnight index swaps now price an 85% chance of a 25-basis-point cut next month, up sharply from last week. This rising confidence is a major headwind for the pound.
This outlook contrasts with the United States, where January retail sales were stronger than expected. This gap in policy direction—BoE easing while the Federal Reserve may hold rates steady for longer—should support the US dollar against the pound. That keeps GBP/USD downside strategies in focus.
For derivatives traders, this may be a chance to position for further declines in GBP/USD. One approach is to buy put options expiring in late March or April, aiming for a move below the key 1.3500 support level. This offers downside exposure while keeping maximum risk defined.
On the technical side, failing to hold above the 1.3635 moving average is a negative sign. In 2025, during the first BoE rate cuts, the pound often weakened in the weeks before the official decision. A break below trendline support near 1.3500 could speed up losses toward the 1.3440 area.
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