GBP/USD retreated as much as 0.5% on Tuesday, after a surge in UK’s unemployment rate suggested the Bank of England might hike interest rates fewer times in the upcoming months to curb inflation.
The rate of unemployment in the United Kingdom rose 0.1 percentage points to 3.9% during the first quarter of the year, the Office for National Statistics reported. It has been the highest rate since the period between November 2021 and January 2022.
The number of unemployed individuals increased by 60,000, totaling at 1.329 million, mostly driven by people who had been unemployed for more than 12 months, the ONS said.
Markets are currently pricing in at least one more 25 basis point rate hike by the Bank of England. Yet, some analysts believed the latest macro data could prompt BoE caution.
“A lot of the better news for sterling is already in the price. Is there enough good news in the economy to go outright long? The answer is not really. What markets were pricing in was a better economic outlook, not a good one,” Jane Foley, head of Forex strategy at Rabobank, was quoted as saying by Reuters.
Meanwhile, the US Dollar was trading not far from recent five-week peak against a basket of major peers on Tuesday. The US Dollar Index edged down 0.15% to 102.273, after climbing as high as 102.75 yesterday.
“Market expectations were for a Fed rate cut this year, but the data just isn’t playing ball, and adding to that, there is a bit of safe haven demand,” Rabobank’s Foley said.
As of 8:05 GMT on Tuesday GBP/USD was edging down 0.10% to trade at 1.2515. Yesterday the major Forex pair went down as low as 1.2443, which has been its weakest level since May 2nd (1.2435).