The British pound is facing downward pressure as inflation data and labor market reports have fueled expectations of interest rate cuts by the Bank of England. While inflation has slowed, and the labor market shows signs of softening, the market is pricing in multiple rate cuts in the near future, which is weighing on the pound.
- UK inflation slowed to 3.0% in January, the lowest since March 2025.
- Core inflation eased to 3.1%, the lowest since August 2021.
- Average weekly earnings growth slowed to 4.2%, the slowest since August 2024.
- The UK unemployment rate climbed to 5.2%, its highest since early 2021.
- Markets are fully pricing in a 25-basis-point interest rate cut by April, with a high probability of a March move.
- Two rate cuts are now fully priced in by November.
- The GBP/USD pair has drifted lower, reflecting the negative sentiment.
- Softer UK labour market data reaffirms bets for a March interest rate cut by the BoE.
The confluence of factors points towards a challenging environment for the pound. The combination of cooling inflation, a softening labor market, and the resulting expectation of monetary policy easing are creating headwinds for the currency. Traders are adjusting their positions in anticipation of these rate cuts, putting downward pressure on the pound’s value against other currencies.