Insights 
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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.
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.
Euro GBP Pressure
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.
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.
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.
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.
Market Opportunities
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.
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.
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.
