British Pound Slides on Weak UK Jobs Data as Dollar Strengthens Ahead of Fed

The British pound extended its decline on Tuesday, weighed down by a weak domestic jobs report and a broad-based rally in the U.S. dollar. The move comes as global currency markets brace for a key interest rate decision from the U.S. Federal Reserve on Wednesday.

As of 4:07 AM ET, the GBP/USD pair, often referred to as cable, traded down 0.23% at 1.3470. The euro also softened against the dollar, with the EUR/USD pair falling 0.11% to 1.1537, according to market data.

UK Labor Market Shows Signs of Weakness

The immediate catalyst for sterling's slide was a report showing the UK private sector shed 34,000 jobs in August, representing a 0.8% year-over-year decrease. The hospitality and retail sectors were particularly hard-hit, with hiring declining by more than 3% on an annualized basis.

Despite the soft jobs data, analysts at ING do not expect a hawkish pivot from the Bank of England at its meeting on Thursday. ING UK economist James Smith noted that wage growth has stabilized at around 2.9%, consistent with the central bank's 2% inflation target. He anticipates the BoE will vote 6-to-3 to keep interest rates unchanged, stating that a hawkish surprise is unlikely "unless we get another major leg higher in energy prices."

Dollar Strength Dominates Forex Markets

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Strategists emphasized that the pound's weakness is largely a story of U.S. dollar strength rather than a reflection of UK-specific economic issues. "The dollar has had a strong start to the week, finally aligning with a confluence of positive short-term drivers," said Francesco Pesole, an FX strategist at ING.

Key factors supporting the dollar include:

• Rising short-term U.S. interest rates, with the 10-year Treasury yield touching 5.0%.
• Higher global energy prices.
• A generally softer risk sentiment across markets.

Markets are now fully focused on the Federal Open Market Committee (FOMC) meeting, where a rate hike is widely expected. ING's baseline scenario sees the dollar remaining firm ahead of the decision, suggesting the U.S. Dollar Index could challenge the 100.0 level in the near term.