GBP/USD fell 0.71%, or nearly 100 pips, to about 1.3529 during Tuesday’s North American session after the US Presidents’ Day holiday. The move followed a weaker UK jobs report.
ONS data showed the ILO unemployment rate rose to 5.2% in the three months to December, up from 5.1% in November and forecasts, and the highest in a decade excluding the pandemic. Average earnings excluding bonuses eased to 4.2% from 4.4% over the same period.
Market Pricing Shifts
Prime Market Terminal put the odds of a 25 bps Bank of England cut at 71% for the 19 March meeting. For the full year, money markets priced 49 bps of easing.
UK CPI data is due on Wednesday, with January inflation expected to slow to 3% from 3.4%. In the US, the New York Empire State Manufacturing Index rose to 7.1 in January versus 7.0 expected, and 7.7 in December.
The ADP Employment Change four-week average increased to 10.3K from 7.8K. GBP/USD was also quoted near 1.3502, with a nearby level at 1.3522 and support around 1.3511, while a trend line stems from 1.3035.
We remember that around this time in 2025, a weak UK jobs report sent the pound tumbling. The unemployment rate had just hit a decade-high of 5.2%, excluding the pandemic period. This immediately led markets to bet heavily on a Bank of England rate cut for March of that year.
Policy Divergence
Today, the situation is different, as the UK unemployment rate has improved to 4.5% for the three months ending December 2025. More importantly, UK inflation is proving stubborn, with the latest January 2026 CPI figure holding at 2.9%, well above the central bank’s target. Consequently, the odds of a rate cut anytime soon have plummeted, with markets now seeing only a small chance of a move before summer.
On the other side of the Atlantic, the US Federal Reserve remains just as cautious as it was back in 2025. Recent comments from officials continue to emphasize a data-dependent approach, especially with core inflation still running above 3%. This “higher for longer” stance in the US creates a stark contrast to the pressures facing the UK economy.
This environment suggests a different approach than the straightforward short we saw in 2025. Given the persistent interest rate advantage for the US dollar, traders might consider strategies that benefit from range-bound trading or limited upside in GBP/USD. Options structures like selling call spreads could be effective, capitalizing on the view that any significant pound strength will likely be capped.
