The Pound to Dollar (GBP/USD) exchange rate fell back on Tuesday as weaker-than-expected UK labour market data undermined Sterling sentiment and boosted expectations that the Bank of England may delay further policy tightening.
At the time of writing, GBP/USD was trading around $1.3396, down roughly 0.4% on the day.
Pound to Dollar (GBP/USD): 1.33947 (+0.01%)
Euro to Dollar (EUR/USD): 1.15979 (-0.07%)
Dollar to Yen (USD/JPY): 158.9335 (-0.08%)
DAILY RECAP:
The Pound (GBP) came under pressure during Tuesday’s session after the latest UK labour market figures pointed to a cooling employment backdrop.
Data released by the Office for National Statistics showed the UK unemployment rate unexpectedly edged up from 4.9% to 5% in the three months to March, while wage growth slowed from 3.6% to 3.4%.
The softer wage figures particularly unsettled Sterling investors as real pay growth moved closer to slipping below inflation once again, highlighting the growing pressure facing UK households amid elevated energy prices and broader geopolitical uncertainty.
Although employment growth during the first quarter proved more resilient than expected, markets instead focused on signs of weakening momentum in the wider labour market.
The disappointing report prompted investors to scale back expectations for additional Bank of England (BoE) interest rate hikes later this year, with some analysts questioning whether a June rate increase remains realistic.
As a result, Sterling’s recent recovery lost momentum and GBP/USD slipped back below the $1.34 threshold.
Meanwhile, the US Dollar (USD) found support through Tuesday’s trade as cautious market sentiment underpinned demand for the safe-haven currency.
Ongoing uncertainty surrounding the Middle East continued to weigh on investor confidence, with markets remaining sceptical that negotiations between the US and Iran are close to producing a lasting agreement.
US President Donald Trump stated late on Monday that planned military action against Iran had been paused as ‘serious negotiations’ continue, but investors remained wary given the substantial differences still separating both sides.
This cautious backdrop helped the US Dollar regain some ground following Monday’s softer performance.
GBP/USD Forecast: UK Inflation and Fed Minutes in Focus
Looking ahead, Wednesday’s UK inflation figures may provide the next major test for Sterling.
Markets expect headline inflation to cool in April despite ongoing pressure from rising global energy costs linked to disruption in the Strait of Hormuz.
A softer inflation reading may further weaken expectations for a near-term Bank of England rate hike and potentially place additional pressure on the Pound.
For the US Dollar, attention will turn to the minutes from the Federal Reserve’s latest policy meeting.
Should policymakers appear increasingly concerned about inflationary pressures and open to tighter monetary policy later this year, the US Dollar could strengthen further.
