Recent UK labour market data shows a rise in unemployment to 5.0% from an expected 4.9% over the three months to September. October saw a reduction in employment by 32,000, with a prior revision for September from a 10,000 decrease to a 32,000 decrease. <\/p>\n
Weekly earnings growth has slowed, with the three-month year-on-year measure undercutting expectations at 4.8%. These economic indicators align with a reduction in expectations for Bank of England rate hikes.<\/p>\n
Despite the current conditions, the EUR\/GBP pair faces upward pressures, with a December rate cut not fully factored in yet. The euro-pound is trading at a higher side due to embedded risk premiums, with a year-end target for EUR\/GBP set at 0.88. <\/p>\n
The FXStreet Insights Team curates expert market observations, including contributions from external analysts. These insights provide perspectives on market movements and forecasts without endorsing specific investment actions.<\/p>\n
The UK jobs market is sending dovish signals following this morning’s data. Unemployment ticked up to 5.0% in the three months to September, while weekly earnings growth slowed more than expected to 4.8%. This follows the trend we saw with the recent October CPI release, which showed inflation cooling to 3.8%, down from the summer’s highs.<\/p>\n
These figures build a strong case for the Bank of England to pivot away from its hawkish summer stance. Remember, the focus back then was on inflation risks while downplaying a weak labour market. Now, with both inflation and employment data pointing down, the argument for a rate cut is becoming much stronger.<\/p>\n
With the Autumn Budget approaching on November 21, any announced tax hikes could be the final trigger for a December rate cut. As of this morning, markets are only pricing in about 18 basis points of a cut for the December 14 meeting, suggesting there’s more room for a dovish repricing. This leaves Sterling vulnerable to further downside in the coming weeks.<\/p>\n
For traders, this suggests upside risks for EUR\/GBP, which is currently trading around 0.8720. A move towards our year-end target of 0.88 seems increasingly likely if the dovish momentum continues. This view is supported by the latest ONS data showing Q3 GDP was flat, narrowly avoiding a contraction but confirming a stagnant economy.<\/p>\n
Considering this outlook, buying EUR\/GBP call options with January 2026 expiries could be a prudent strategy to position for further Sterling weakness. Looking back at the BoE’s policy shift in late 2021, we saw that once a clear dovish trend is established, implied volatility tends to rise. This makes getting into positions ahead of the consensus a key advantage.<\/p>\n
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