EUR Edges Up on Weak UK Jobs & Expected BoE QT Slowdown

Key Moments

Euro Recovers Slightly as Sterling Softens

The Euro (EUR) is posting modest gains against the British Pound (GBP) on Tuesday after the release of mixed UK employment data. EUR/GBP is trading around the 0.8560 area at the time of writing, recovering from early-session weakness but still hovering near the two-week low at 0.8552. The cross has been under pressure, having fallen nearly 0.5% over the previous two trading days.

Sterling weakened following the data, giving the Euro some support even as the broader technical picture for EUR/GBP remains fragile.

UK Labor Market: Stable Jobless Rate, Sharp Rise in Claimants

Figures from the UK National Statistics Office released on Tuesday show that the ILO Unemployment Rate stayed at 4.9% in the three months to July, defying expectations for an increase to 5%. While the headline unemployment rate was unchanged, underlying labor market signals were less encouraging.

Jobless claimants rose by 27.8K, more than triple the anticipated 8.3K increase, and in stark contrast to the prior month’s 11.8K drop. The sharp rise in claimants points to a deterioration in labor market conditions despite the steady ILO rate, weighing on GBP.

BoE Policy Decision and Inflation Data in Focus

The UK macro calendar is packed this week. August inflation data are due on Wednesday, followed on Thursday by the Bank of England’s (BoE) monetary policy decision, the main event for markets.

The BoE is widely expected to keep interest rates on hold. This view has been reinforced by Governor Andrew Bailey’s recent remarks before the UK Parliament, where he pushed back against the notion that further rate hikes are “inevitable.” Even so, the internal dynamics of the Monetary Policy Committee remain crucial. A split vote is seen as highly likely, and investors will pay close attention to the number of dissenters to gauge the likelihood of future tightening.

BoE Adjusts Bond-Selling Strategy Amid Market Turbulence

Earlier on Tuesday, The Telegraph reported that the BoE intends to reshape its bond-selling strategy by ceasing sales of 20- and 30-year securities. These operations have been contributing to higher UK borrowing costs against a backdrop of global bond market turmoil.

The reported move to stop unloading longer-dated gilts underscores the sensitivity of UK funding conditions to quantitative tightening at the long end of the curve.

Eurozone Data: Mixed Inflation Signals Ahead of Key Surveys

On the Eurozone side, Tuesday’s releases paint a mixed picture on consumer prices. Data show that the French Consumer Price Index (CPI) slowed in August, suggesting easing price pressures there. In contrast, Spain’s consumer inflation accelerated at its fastest year-over-year pace in the last three years, highlighting divergent inflation dynamics within the currency bloc.

Later in the day, the German ZEW Economic Sentiment Index and the Eurozone Trade Balance for July are due to round out the regional data calendar, potentially adding further direction for the Euro.

ILO Unemployment Rate: Indicator Profile

The ILO Unemployment Rate, published by the UK Office for National Statistics, measures the number of unemployed workers as a share of the total civilian labor force. It is regarded as a leading indicator of overall economic performance in the UK.

If the unemployment rate rises, it typically signals a lack of expansion in the labor market and points to a weakening economic backdrop. In currency terms, an increase in the rate is generally considered bearish for the Pound Sterling (GBP), while a decrease is usually seen as supportive.

The unemployment rate is one of the most closely watched measures of the UK labor market and receives extensive media coverage beyond financial circles, amplifying its impact. It is released around six weeks after the reference month. Although the BoE’s primary mandate is price stability, there is typically a substantial inverse relationship between unemployment and inflation. A reading above expectations tends to be GBP-bearish.

Claimant Count Rate: Indicator Profile

The Claimant Count Rate, also issued by the UK Office for National Statistics, tracks the number of benefit claimants as a percentage of the working population, excluding homemakers and individuals in training schemes. It serves as a timely gauge of UK labor market conditions.

An increase in the rate points to a larger share of the population relying on benefits, suggesting weak labor demand and limited economic expansion. A decline is often interpreted as a sign of improving conditions and possible inflationary pressure. From a currency perspective, a lower claimant count is typically bullish for GBP, while a higher reading is viewed as bearish.

The series covers the previous month, in contrast to the ILO Unemployment Rate, which is reported for an earlier three-month period. It is typically released around the middle of the month. A higher-than-expected increase in claimants is often interpreted as signaling a weaker economic environment and a bias toward looser monetary policy, which tends to be negative for the Pound.