Pound Corrects After Disappointing UK Jobs Data
Sterling weakened to around US$1.33 on Tuesday (May 19), after market participants digested weaker-than-expected UK labor market data. Payrolls fell by 100,000 in April, the deepest decline since May 2020 and far exceeding the consensus estimate of a 10,000 decline.
A series of other indicators also signaled a cooling labor market: the unemployment rate rose unexpectedly to 5% in the first quarter of 2026, while regular wage growth slowed to 3.4%—the weakest since late 2020—and the number of vacancies fell to its lowest level since 2021. The combination of weak payrolls, rising unemployment, and moderating wages reinforces the assumption that inflationary pressures from the labor market are easing.
The main implication is that the market is readjusting Bank of England policy expectations, with traders now viewing less room for tightening and only expecting two interest rate hikes by December. This repricing of the interest rate channel is likely to pressure the pound through the yield differential channel, especially if global markets remain sensitive to changes in the interest rate outlook in developed countries.
Beyond domestic factors, attention is also focused on Middle East geopolitical risks, which have kept Brent near a four-year high, after US President Donald Trump postponed further attacks on Iran but warned of escalation if talks fail. On the domestic political front, leadership frontrunner Andy Burnham rejected changes to the borrowing limit, easing concerns about fiscal easing that had triggered pressure in the UK bond market last week, while Prime Minister Keir Starmer stated that he would remain in office even if Burnham wins the by-election—opening up potential leadership friction that the market is closely monitoring. (asd)
Source: Newsmaker.id
