What UK employment data means for interest rates and sterling
The latest UK employment figures have increased the likelihood of a February interest rate cut by the Bank of England, putting pressure on sterling.
Key employment data insights
While headline wage growth remains resilient, underlying employment metrics suggest a cooling labour market. The data points to emerging weaknesses beneath the surface.
The number of payrolled employees outside government roles declined by 0.9%, indicating potential broader market weakness ahead.
Traditional unemployment rate figures continue to be affected by data collection issues, making alternative metrics more significant for analysis.
These shifts in employment patterns could foreshadow further pressure on wage growth, a key metric for monetary policy decisions.
Impact on Bank of England rate expectations
Market expectations for a February rate cut by the Bank of England have increased significantly following the data release.
The probability of a February cut has risen from 80% to 90%, reflecting growing confidence that the Monetary Policy Committee will act.
Forex trading activity has intensified as markets adjust to the shifting rate outlook.
These expectations are reshaping the trading landscape across multiple asset classes, from currencies to fixed income.
Sterling's response to employment figures
The British pound has faced renewed pressure as markets digest the implications of the employment data for monetary policy.
Trading signals have shifted bearish on sterling as rate cut expectations mount.
Currency traders are particularly focused on GBP/USD movements, with the pair showing vulnerability to further downside.
The combination of UK economic data and a strong US dollar continues to weigh on sterling's performance.
GBP/USD technical outlook
Despite attempting to rebound on Monday, GBP/USD has struggled to maintain momentum following the employment data release.
The currency pair remains above recent lows but faces significant technical resistance to any substantial recovery.
The past month's steep losses reflect both sterling weakness and broad dollar strength in the forex market.
Technical analysis suggests a potential retest of October 2023 lows around $1.20 could be on the horizon.
GBP/USD chart
Trading implications for markets
Traders using spread betting and CFD trading platforms are adjusting their strategies to account for increased rate cut probabilities.
The data's impact extends beyond currency markets to UK equities and fixed income instruments.
Position sizing and risk management become increasingly important as markets digest the changing monetary policy landscape.
Traders should monitor upcoming economic indicators for further confirmation of labor market trends.
How to trade during periods of economic uncertainty
- Research economic indicators and central bank policies thoroughly
- Choose whether you want to trade or invest
- Open an account with us
- Search for markets that align with your analysis
- Place your trades with appropriate risk management
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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