Recent data from the UK labour market shows that unemployment has risen to 5.0%, up from an expected 4.9%, for the three months ending in September. In October, employment fell by 32,000, and September’s numbers were revised down from a 10,000 decrease to 32,000. Weekly earnings growth has also slowed down. The year-on-year rate for the last three months was 4.8%, falling short of expectations. These economic trends suggest that predictions for future rate hikes by the Bank of England have decreased.

Euro GBP Pressure

Despite these conditions, the EUR/GBP currency pair is facing upward pressure, as the market has not fully priced in a potential rate cut in December. The euro-pound is trading higher due to embedded risk premiums, and the year-end target for EUR/GBP is set at 0.88. The FXStreet Insights Team gathers expert observations on the market, including input from outside analysts. These insights help provide context for market movements and forecasts without promoting specific investment actions. The UK jobs market is showing signs of caution following the release of today’s data. Unemployment reached 5.0% for the three months to September, while weekly earnings growth slowed more than expected to 4.8%. This trend was also evident in the October CPI release, which revealed a drop in inflation to 3.8% from its summer highs. These numbers bolster the case for the Bank of England to shift away from its previous hawkish approach. Earlier, the focus was on inflation risks, with little concern for the weak labour market. Now, with both inflation and employment data declining, the rationale for a rate cut is becoming stronger.

Market Opportunities

With the Autumn Budget coming up on November 21, any announced tax increases could prompt a December rate cut. Currently, markets are only pricing in about 18 basis points of a cut for the December 14 meeting, suggesting there is potential for a more dovish outlook. This puts the Sterling at risk for further declines in the upcoming weeks. For traders, this indicates a potential upside for EUR/GBP, which is currently around 0.8720. A movement toward our year-end target of 0.88 seems more likely if this dovish trend continues. This view is supported by the latest ONS data, showing that Q3 GDP was flat, just avoiding contraction and confirming a stagnant economy. Given this outlook, purchasing EUR/GBP call options with January 2026 expiries could be a smart move to position for further weakness in the Sterling. Reflecting on the Bank of England’s policy change in late 2021, we noted that once a clear dovish trend is established, implied volatility generally rises. This highlights the importance of entering positions ahead of the market consensus. Create your live VT Markets account and start trading now.

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