Pound Drops Below 1.3550 as UK Jobs Data Disappoints; CPI Next in Focus

The British pound slipped below 1.3550 against the US dollar on Tuesday, pressured by softer-than-expected UK labour market figures that reinforced expectations of imminent Bank of England rate cuts. Traders now turn their attention to Wednesday’s UK CPI release for fresh direction.

UK Labour Market Cools Further

Official data released earlier showed the UK unemployment rate ticking up to 4.3% in the three months to November, while wage growth, excluding bonuses, eased to 5.6% — both coming in below market forecasts. The softer jobs report adds to the narrative that the labour market is cooling, which could prompt the BoE to begin easing monetary policy sooner than previously anticipated.

According to the Office for National Statistics, the number of payrolled employees fell by 47,000 in December, marking the third consecutive monthly decline. Vacancies also dropped, continuing a trend that began in mid-2022. These figures suggest that the resilience seen in the UK jobs market is fading, raising the stakes for the upcoming inflation data.

CPI Data in the Spotlight

Investors are now bracing for Wednesday’s consumer price index report, which is expected to show headline inflation easing to 3.8% year-on-year in December, down from 4.0% in November. Core inflation, which excludes volatile items, is also forecast to moderate. A softer print would solidify the case for BoE rate cuts, potentially dragging the pound lower. Conversely, an upside surprise could force the central bank to maintain a hawkish stance, providing support for sterling.

The market is currently pricing in a 60% chance of a 25-basis-point cut at the BoE’s February meeting, according to swaps data. The central bank has kept rates at 5.25% since August, but recent commentary from policymakers has hinted at a possible shift in the coming months.

Why This Matters for Traders

For currency traders, the interplay between labour market weakness and inflation trends is critical. If CPI comes in below expectations, the pound could extend its decline, testing support levels near 1.3500. On the other hand, a hotter-than-expected print could trigger a short-covering rally, pushing GBP/USD back above 1.3600. The pair’s immediate direction hinges on the CPI release, making it a key event risk for the week.

Conclusion

Sterling’s slide below 1.3550 reflects growing conviction that the BoE will pivot to rate cuts as the labour market softens. Wednesday’s CPI data will be the next major catalyst, with the potential to either reinforce or challenge those expectations. For now, the pound remains sensitive to UK economic data and the evolving global rate outlook.

FAQs

Q1: Why did the pound fall below 1.3550?
The pound weakened after UK labour market data showed higher unemployment and slower wage growth, raising expectations of Bank of England rate cuts.

Q2: When is the UK CPI data released?
The Office for National Statistics will publish the December CPI report on Wednesday, January 17, 2024.

Q3: How could the CPI report affect GBP/USD?
If inflation comes in below expectations, it could reinforce rate cut bets and push the pound lower. A higher-than-expected print might support the pound by suggesting the BoE may hold rates steady for longer.