During Asian and European trading on Tuesday, the British pound fell sharply against the U.S. dollar, dropping over 0.5% at one point, as UK unemployment data for December unexpectedly rose and wage inflation fell short of forecasts. The pound was last trading down 0.37% at 1.3578. The UK labor market is facing a severe test with stagnant wages and rising unemployment, causing the currency to break below key technical levels. Short-term downside risks are now focused on four upcoming data releases.
Core negative factors: A broad cooling in the jobs market confirms an economic slowdown. Tuesday's UK employment data fell short of expectations across the board, verifying a cooling labor market. The ILO unemployment rate for the three months to January rose to 5.2%, the highest level in nearly five years and above the expected 5.1%. The number of people claiming jobless benefits jumped to 286,000 in January from 27,000, while employment growth slowed significantly. Excluding bonuses, average weekly earnings growth slowed to 4.2% year-on-year in the fourth quarter of 2025 from 4.6%, indicating synchronized cooling in wage inflation. Weakness in both employment and wages provides solid data support for the Bank of England to begin cutting interest rates.
A cascade of disappointing data caused the pound to lose the 1.3600 level. Under the dual pressure of weak fourth-quarter GDP and unexpectedly poor employment data, the pound accelerated its decline, breaking through the 1.3600 psychological barrier and hitting a ten-day low of 1.3570. The short-term bearish trend is clear. Last week's disappointing GDP data had already caused the pound to underperform a basket of currencies, and the employment figures have amplified the decline.
Market pricing indicates a 74% probability of a rate cut in March, with a one-year easing path taking shape. Analysts at Brown Brothers Harriman emphasized that weak UK economic data has directly strengthened expectations for Bank of England rate cuts, forming the core logic behind the pound's weakness. According to pricing in swap markets, the probability of a 25-basis-point cut to 3.50% at the Bank of England's March 19 policy meeting has climbed to 74%. Expectations for a cumulative 50-basis-point reduction over the next twelve months are largely solidified, putting the start of an easing cycle on a countdown.
Key upcoming data this week, consisting of four major releases, will determine the pound's short-term direction. The analyst pointed out that these figures will lock in the Bank of England's policy path, acting as a core catalyst for pound volatility. The data includes labor market figures, where the unemployment rate is expected to hold at 5.1% and private sector wage growth may hit a multi-year low; inflation data, where both headline and core CPI are forecast to fall to 3.0%, dragged down by utility prices; retail sales for January, which will reflect actual consumer vitality; and February PMI readings for manufacturing and services sectors, which will verify the strength of the economic recovery.
Summary and Technical Analysis: Amid the double blow of weak GDP and employment data, the pattern of a faltering UK economic recovery, receding inflation, and a cooling labor market is clear. A Bank of England rate cut in March is now a high-probability event. If this week's CPI, retail sales, and PMI data continue to show weakness, rate cut expectations will be further cemented, keeping the pound under sustained downward pressure against the U.S. dollar and other major currencies. Short-term fluctuations will revolve entirely around policy expectations and data outcomes. From a technical perspective, the pound has broken below its original pressure line and found support at the lower boundary of a triangular consolidation pattern. The recent price action has formed this triangle, and the key focus is whether this support level will hold. If the exchange rate does not break downwards from here, a rapid reversal and upward breakout is possible, which is a common occurrence during triangular consolidation patterns.
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