The British Pound (GBP) came under significant selling pressure on Tuesday after the UK’s Office for National Statistics (ONS) released soft labor market data for the three months ending in April. The report revealed that the UK added only 89,000 jobs during the period, a slowdown from the 112,000 positions added in the previous quarter. Additionally, the ILO Unemployment Rate rose to 4.6%, in line with expectations but marking the highest level since July 2021.

This cooling in labor demand is partly attributed to higher employer contributions to National Insurance (NI), which rose from 13.8% to 15% starting in April, as announced in the Autumn Statement by UK Chancellor Rachel Reeves. The ONS noted that “some firms may not be recruiting new workers or replacing leavers,” suggesting a cautious hiring environment.

Wage growth also showed signs of deceleration. Average Earnings Excluding Bonuses increased by 5.2%, below expectations of 5.4%, while earnings including bonuses rose by 5.3%, down from the previous 5.6% reading. Slower wage growth, particularly in the services sector, points to easing inflationary pressures and further supports the case for a more dovish Bank of England (BoE).

Following the release, investors grew more confident that the BoE would maintain the current policy rate of 4.25% at its June 19 meeting. However, markets are increasingly pricing in rate cuts later this year, with ING analysts suggesting cuts in August and November are now more likely due to the weakening jobs data.

Looking ahead, GBP traders should prepare for increased volatility as the UK is set to release monthly GDP and factory output figures for April on Thursday. These releases could further shape rate expectations and the direction of the GBP in the near term.

Trade Idea:

Consider selling GBP/USD on any rallies near 1.3530, targeting 1.3370 with a stop at 1.3580.