Sterling traded at $1.3526 on Tuesday, down 0.18% from the previous session, after UK labour-market data missed expectations and prompted profit-taking on a five-day advance. The currency drifted toward $1.3520 during the European session, holding above the 1.3500 handle.
The decline followed Monday’s session, when the pound reached $1.3571—its strongest level since May 12—before closing at $1.3552, up 0.14%. That gain was driven by weak U.S. data, which reduced expectations for a September Federal Reserve rate hike. The five-day rally extended a late-July recovery that cleared several key moving averages.
Cable is up 0.77% over the past month and 0.37% year-over-year. The move from the 1.3440 support area to 1.3571 represents a 0.97% gain over roughly two weeks.
The retreat in sterling was orderly, with the currency remaining the second-best performer among G10 peers this month. The correction followed a labour-market report released at 07:00 BST, which had been fully anticipated as the week’s first major data point.
Sterling’s decline against the euro contrasted with gains versus the yen, indicating a domestic-driven repricing rather than a broad risk move. The dollar strengthened broadly after renewed U.S.-Iran tensions lifted Brent crude to $90.97 and pushed the 10-year U.S. Treasury yield to 5.323%, its highest since 2007. The euro fell 0.06%, the Australian dollar 0.06%, and the yen 0.20%.
Wednesday’s calendar features UK CPI and the Federal Reserve’s latest meeting minutes, both due within hours of each other.
UK labour-market data for the three months to June showed a broad miss across key indicators. The ILO unemployment rate held at 4.9%, missing expectations for a decline to 4.8%. Employment rose by 83,000, undershooting forecasts for a 129,000 gain—a 35.7% miss. Payrolled employment fell by an estimated 13,000 in July, marking the sixth consecutive monthly decline.
Job vacancies dropped to 707,000 in the three months to July, the lowest since 2021. The series has steadily declined from its post-pandemic peak, removing the labour-shortage argument that previously supported wage growth. The claimant count also missed expectations, aligning with the payroll decline.
Private-sector wage growth slowed to 2.8% year-over-year, the weakest since late 2020. This metric is closely watched by the Bank of England as a gauge of domestic inflation persistence. Services inflation has remained near 3.7%, and the central bank had cited wage growth as a justification for maintaining restrictive policy. At 2.8%, private-sector pay is now running below headline CPI, indicating real wage contraction.
The Bank of England’s five-year wage trajectory shows a peak above 7% in 2023, moderating through 2024 and 2025, before falling below the 3% threshold it considers consistent with the 2% inflation target. This marks a completed disinflation on the labour-cost side.
However, energy prices now represent the primary inflation driver. Brent crude at $90.97 and the UK’s heavy reliance on energy imports mean the inflation impulse arrives through the import channel rather than domestic pay settlements. The central bank cannot address this with rate policy without risking broader economic damage, particularly amid six consecutive months of payroll declines.
Money markets continue to price around 30 basis points of Bank of England tightening by year-end, with a December hike effectively fully discounted. Traders maintain a hawkish bias despite wage data arguing against further tightening, as energy-driven inflation remains the dominant concern. This positioning appears fragile; a softer-than-expected CPI print on Wednesday could prompt a rapid unwind of December hike expectations and weigh further on sterling.
