GBP Weakens on Wage Growth Slowdown
On Wednesday, the Pound Sterling (GBP) underperformed against most major currencies except the Japanese Yen (JPY). The decline comes amid rising market expectations that the Bank of England (BoE) will resume its monetary easing cycle at the December meeting.
According to Reuters, traders anticipate a 20 basis point rate cut by the BoE before year-end. These expectations surged following the release of UK labor market data for the three months ending in September.
The employment report revealed that UK employers laid off 22,000 workers during the period—marking the first contraction in the labor force since March 2024. Additionally, the ILO Unemployment Rate rose to 5%, the highest level since March 2021.
Wage growth also slowed. Average Earnings Excluding Bonuses fell to 4.6% on an annualized basis, the weakest pace in over three years. This deceleration may contribute to cooling consumer inflation expectations.
While dovish sentiment is building, Megan Greene, a BoE policymaker, stated at the UBS conference in London that interest rates should remain at current levels. She expressed concern over inflation persistence, saying: "I am worried about inflation persistence in the UK, which means monetary policy needs to be more restrictive than otherwise." She added that wage settlement data for next year remains higher than the BoE would prefer.
Today’s data shows the Pound Sterling posted its largest decline against the Swiss Franc and fell to 1.3115 against the United States Dollar. This drop follows a four-day winning streak that ended after the employment data release.
Meanwhile, the United States Dollar Index (DXY) climbed to 99.60, reflecting renewed demand. However, expectations for a rate cut by the Federal Reserve are also rising, with the probability of a 25 basis point cut in December increasing to 68%, according to the CME FedWatch tool.
The GBP/USD pair continues to trade below its 200-day Exponential Moving Average (EMA) at 1.3269, reinforcing the bearish outlook. The 14-day Relative Strength Index (RSI) struggles to break above 40.00, and further downside momentum could push the pair toward the key support level at 1.2700.
On the upside, the October 28 high near 1.3370 remains a major resistance zone.