Key Moments
- GBP/USD trades near 1.3535 in early Asian hours as softer UK labor figures weigh on Sterling.
- The UK Unemployment Rate held at 4.9% in the three months to June, above the 4.8% consensus, while wage growth slowed.
- Market pricing reflects expectations for one Bank of England rate increase by year-end, taking the Bank rate from 3.75% to 4.0%.
GBP/USD Edges Lower Ahead of UK CPI Release
GBP/USD is trading close to 1.3535 in early Asian dealings on Wednesday, with the British Pound losing ground against the US Dollar after weaker-than-expected UK labor data. Market participants are now focused on the upcoming UK Consumer Price Index (CPI) inflation report due later on Wednesday, which could further influence expectations for Bank of England (BoE) policy.
The recent pullback in the pair comes as traders also reassess the outlook for US interest rates, dialing back expectations for a near-term Federal Reserve rate hike, which has tempered broader US Dollar strength.
UK Labor Market Softens as Unemployment and Wage Growth Disappoint
Figures from the Office for National Statistics released on Tuesday showed that the UK Unemployment Rate remained at 4.9% in the three months to June. The reading exceeded the market forecast of 4.8%, signaling a slightly weaker labor backdrop than anticipated.
At the same time, Average Earnings Including Bonus eased to 4.1% in the three months to June, down from 4.4% in the three months to May. According to some economists, this moderation in pay growth could make the BoE more cautious about raising interest rates this year.
Current money market pricing indicates that City economists expect a single BoE rate increase by the end of the year, which would move the Bank rate from 3.75% to 4.0%.
Commenting on the outlook, James Smith, a developed markets economist at the Dutch bank ING, said, “Ongoing weakness in private sector hiring and wage growth suggests the bar is still relatively high for a rate hike in 2026, barring a severe and prolonged spike in energy prices.”
US Rate Expectations Ease, Limiting Downside in GBP/USD
On the US side, the Greenback faces some pressure from reduced expectations of an interest rate hike at the Federal Reserve’s next meeting. Data released last week showed a decline in US Retail Sales in July, the first drop in nine months, alongside unexpected job losses and subdued CPI inflation.
Based on the CME FedWatch tool, traders now assign a 35% probability to a rate increase at the Fed’s September meeting, down from 47% a month earlier. This softer policy outlook for the US may help cap further downside in GBP/USD despite the UK labor disappointment.
Sterling Performance Versus Peers
Strategists at Scotiabank note that Sterling’s decline has been relatively contained compared with other European currencies. They observe that “Sterling is a little softer on the session,” and describe the setback as modest, stating that “losses are marginal and more or less in line with its core European peers.” They also highlight that the “UK employment data released earlier was, however, disappointing,” yet the weaker labor signals have not led to a significantly larger divergence for GBP against the wider European complex.
Key UK and US Indicators at a Glance
| Indicator | Period | Latest Reading | Previous / Consensus (if stated) |
|---|---|---|---|
| GBP/USD spot level | Early Asian session, Wednesday | Near 1.3535 | Not stated |
| UK Unemployment Rate | Three months to June | 4.9% | Consensus 4.8% |
| Average Earnings Including Bonus | Three months to June | 4.1% | 4.4% (three months to May) |
| BoE Bank rate (current vs expected) | By end of year | 3.75% now, expected 4.0% | One hike implied |
| Probability of Fed hike (September) | Current vs one month earlier | 35% | 47% (one month earlier) |
Technical Picture: Uptrend Intact Despite Pullback
From a technical perspective, GBP/USD retains a positive near-term structure on the daily chart. The pair is trading above both the 100-day simple moving average (SMA) and the 20-period middle SMA of the Bollinger Bands, helping to preserve the broader upward trend.
The Relative Strength Index (14) stands at 60.8, indicating bullish momentum but remaining below overbought levels. This configuration suggests that, as long as price action holds above key underlying averages, the technical backdrop continues to favor further gains rather than a trend reversal.
On the upside, the first notable resistance is located at the upper Bollinger Band near 1.3615, an area where buyers may show caution. On the downside, initial support is seen at the Bollinger middle band around 1.3450, followed by the 100-day SMA at 1.3420. A more substantial support area is found at the lower Bollinger Band close to 1.3285. As long as this layered support zone remains intact, the broader bias is expected to favor buying on dips rather than anticipating a deeper downturn.
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