Key Moments
- GBP/USD is quoted near 1.3500 following a mixed UK labor market report showing lower unemployment but softer payrolls.
- Private sector regular pay growth slowed to 3.2% year-on-year in February, below the Bank of England’s 3.5% Q1 projection.
- Brown Brothers Harriman expects BoE rate hike expectations to shift back toward cuts and anticipates GBP/USD to remain in a 1.3400-1.3700 range in the near term.
Market View on GBP/USD
Brown Brothers Harriman’s (BBH) Elias Haddad notes that GBP/USD is trading close to 1.3500 after the release of a mixed United Kingdom labor market report, which showed a decline in unemployment alongside weaker payroll figures. According to BBH, this backdrop, combined with moderating wage dynamics, underpins expectations that the Bank of England (BoE) will move back toward an easing stance later this year.
Against this policy backdrop, BBH projects that the current pricing for additional BoE rate hikes is likely to unwind, with market expectations reverting toward interest rate cuts. In foreign exchange terms, BBH sees GBP/USD remaining contained, with the pair expected to trade within a 1.3400-1.3700 corridor in the near term.
Labor Market Signals and Wage Dynamics
The latest UK labor market release delivered conflicting signals: unemployment is falling, but payroll growth is weakening. The key focus for monetary policy, however, is wage behavior. BBH emphasizes that wage developments are creating additional room for monetary easing by the BoE.
“Importantly, easing wage pressures leaves room for the BoE to resume easing later this year. In line with consensus, the policy-relevant private sector regular pay growth slowed to 3.2% y/y in February vs. 3.3% in January.”
“That’s the lowest pace of wage growth since October 2020 and is below the BoE’s Q1 projection of 3.5%.”
BoE Outlook: From Hikes Back to Cuts
With pay growth cooling and labor market slack persisting, BBH argues that market expectations will pivot away from additional rate increases by the BoE and move back toward the prospect of cuts.
“We expect BoE rate hike bets to flip back to cuts given excess slack in the UK economy. The BoE estimates a negative output gap of -1% of GDP in 2026.”
GBP/USD Trading Range Expectations
In the currency market, this macro and policy backdrop translates into an expectation of range-bound trading for GBP/USD in the near term.
“GBP/USD will likely trade within a 1.3400 and 1.3700 range in the near term.”
Key Data and Projections Overview
| Indicator / Projection | Value | Context |
|---|---|---|
| GBP/USD spot level | Near 1.3500 | Following mixed UK labor market data |
| Private sector regular pay growth (February, y/y) | 3.2% | Down from 3.3% in January |
| BoE Q1 wage growth projection | 3.5% | Above the actual 3.2% outcome |
| BoE estimated output gap (2026) | -1% of GDP | Indicates excess economic slack |
| Expected GBP/USD trading range (near term) | 1.3400-1.3700 | BBH near-term range view |
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