The British Pound (GBP) extended its recovery on Wednesday, climbing above 1.3350 in the European session after two consecutive days of losses. The GBP/USD pair benefited from renewed weakness in the U.S. Dollar as investors priced in growing expectations of two Federal Reserve rate cuts before year-end.
At midweek trading, market sentiment leaned toward a softer dollar amid dovish remarks from Fed officials and signs of slowing U.S. economic momentum. Traders now await speeches from both Bank of England (BoE) and Federal Reserve policymakers for further direction.
Technically, analysts note that a decisive move above 1.3365 could open the path toward 1.3400 and potentially 1.3470–1.3500, while downside pressure could reemerge below 1.3200, with key support near the 200-day Simple Moving Average (1.3180).
UK Jobs Data Adds Pressure on the BoE
The Office for National Statistics (ONS) reported that the UK ILO unemployment rate rose slightly to 4.8% in the three months to August, up from 4.7% in the prior reading. The number of jobless benefit claimants increased by 25,800 in September, reversing a 2,000 drop in August — signaling that the labor market may be softening.
Meanwhile, Average Earnings including Bonuses rose 5.0%, surpassing forecasts and the previous 4.7%, while regular pay (excluding bonuses) slowed to 4.7%, the weakest pace since mid-2022.
This combination of moderating wage growth and rising unemployment has strengthened expectations that the BoE could continue its gradual rate-cut cycle to support the economy. Investors remain cautious, however, as UK fiscal challenges ahead of the November Autumn Budget may limit the central bank’s room for aggressive easing.
Key takeaways:
- UK unemployment climbs to 4.8%, signaling labor weakness.
- Average earnings growth beats expectations at 5.0%.
- Traders anticipate a measured BoE easing path into year-end.
Fed Policy Bets and U.S. Political Gridlock Weigh on USD
The U.S. Dollar Index (DXY) remains near its highest level since August but is struggling to extend gains amid rising Fed rate-cut expectations. The CME FedWatch Tool shows traders fully pricing in a 25 basis-point cut in October and assigning a 90% probability of another cut in December.
Meanwhile, concerns over the ongoing U.S. government shutdown, now stretching into its third week, have added to investor caution. House Speaker Mike Johnson warned that the stalemate could become the longest in history unless a bipartisan deal is reached soon.
Broader risk sentiment remains fragile, but markets are watching closely for remarks from Fed Chair Jerome Powell, which could shape the near-term dollar outlook. Any dovish signals could reinforce expectations for monetary easing, potentially limiting further downside for GBP/USD in the near term.