Sterling Slips Toward 1.33 as UK Labor Market Weakens and Rate Cut Speculation Builds

The British pound extended its decline for a second consecutive day, sliding toward the 1.3300 mark against the US dollar. This drop follows the release of disappointing UK employment data, which has intensified speculation that the Bank of England may soon pivot toward interest rate cuts.

Sterling traded around 1.3300 after reaching a daily high of 1.3352, unable to surpass last Friday’s peak of 1.3370. The latest employment report revealed a rise in the unemployment rate from 4.7% to 4.8% in August, while job creation slowed significantly—only 91,000 new positions were added, far below the expected 123,000 and a sharp drop from the previous 232,000.

Wage growth showed mixed signals. Average weekly earnings including bonuses rose slightly from 4.8% to 5%, but excluding bonuses, the figure dipped to 4.7%, suggesting a softening in real income growth.

These figures provide ammunition for dovish policymakers at the Bank of England who may advocate for rate cuts. However, traders remain cautious, with many expecting any easing to be delayed until March 2026.

Meanwhile, across the Atlantic, the US dollar held steady ahead of a key speech by Federal Reserve Chair Jerome Powell. The US Dollar Index dipped slightly by 0.07% to 99.17, reflecting mild pressure amid ongoing trade tensions with China.

Adding to the cautious mood, US small business sentiment declined in September. The National Federation of Independent Business reported a drop in its Business Optimism Index by 2.0 points to 98.8—the first decline in three months—driven by concerns over worsening operating conditions in the months ahead.