Pound falls on weak labor data while dollar gains on inflation bets

Today market analysis on behalf of Milad Azar Market Analyst at XTB MENA

The British pound extended its losses against the U.S. dollar after a weaker-than-expected UK labor market report. The unemployment rate rose to 4.3%, marking its highest level since May, while job creation slowed significantly, down from 373,000 in August. This data reflects a softening UK labor market, prompting markets to speculate on potential rate cuts from the Bank of England. Consequently, this sentiment has fueled selling pressure on the pound.

Meanwhile, the dollar remains close to a four-month high, supported by expectations of economic resilience tied to President Donald Trump’s potential re-election and Republican control of Congress. Market participants anticipate that Trump’s proposed economic policies, including possible tariffs and tighter immigration measures, could drive U.S. inflation upward. This outlook has led to a recalibration of rate-cut expectations for the December Federal Reserve meeting, providing further support to the greenback.

Looking ahead, investor attention is shifting to Wednesday’s U.S. inflation report. A moderate inflation reading could reinforce the Fed’s rate-cut stance, potentially alleviating some downward pressure on the pound. Conversely, persistently high inflation could prompt the Fed to adopt a more hawkish stance, further intensifying challenges for the Sterling.

Zaid Barem / YMM