The British Pound is under pressure as recent economic data fuels expectations of interest rate cuts by the Bank of England. Inflation has slowed more than expected, and the labor market is showing signs of weakness, leading traders to increase bets on rate cuts as early as March. The Pound’s movements are also influenced by the strength of the US Dollar and expectations surrounding the Federal Reserve’s monetary policy.
- UK inflation slowed to 3.0% in January, the lowest since March 2025.
- Core inflation also eased to 3.1%, marking its lowest level since August 2021.
- Average weekly earnings growth slowed to 4.2%, the slowest pace 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 rate cut by April, with a high probability of a move in March.
- The GBP/USD pair recovered above 1.3500 due to improved risk sentiment and a weaker US Dollar.
- Softening UK labour data reaffirms bets for a March interest rate cut by the Bank of England (BoE), weighing on the British Pound (GBP).
The confluence of slowing inflation and a weakening labor market suggests a challenging economic environment for the UK. Traders are anticipating monetary easing, which could further depreciate the Pound. The interplay between domestic economic data and global factors, such as US monetary policy, will likely continue to influence the Pound’s performance in the near term.