Pound Sterling declines as UK Unemployment Rate unexpectedly rises to 4.8%

• The Pound Sterling weakens against its peers due to slowing UK employment growth.
• The UK Unemployment Rate rises to 4.8% in the three months ending in August.
• Easing US-China trade tensions offers support to the US Dollar.

The Pound Sterling (GBP) faces selling pressure against its peers on Tuesday after the release of the United Kingdom (UK) labor market data for the three months ending in August.

The Office for National Statistics (ONS) reported that the ILO Unemployment Rate rose to 4.8%, higher than estimates and the prior reading of 4.7%. Fresh workers added during the period came in at 91K, much less than the 232K jobs added in the three months ending July.

Signs of cooling UK labor market are expected to boost expectations for more interest rate cuts by the Bank of England (BoE) in the remainder of the year.

For fresh cues on the monetary policy outlook, investors will focus on speeches from BoE Monetary Policy Committee (MPC) member Alan Taylor and Governor Andrew Bailey, which are scheduled later on Tuesday during the North American session. Investors will closely monitor their words to get cues about whether the UK central bank will cut interest rates again this year.

On Monday, BoE MPC member Megan Greene argued in favour of reducing interest rates further, citing that the monetary policy is still restrictive. However, she remained cautious about inflation returning towards the 2% target.

The ONS data showed that Average Earnings Including Bonuses, a key measure of wage growth, slowed to 4.7% on year, as expected, against the former reading of 4.8%. Average Earnings Excluding Bonuses rose at a faster pace of 5%, higher than expectations and the prior release of 4.7%.

Daily digest market movers: Pound Sterling weakens against US Dollar

• The Pound Sterling slides below 1.3300 against the US Dollar (USD) during Tuesday's European session after the release of the UK employment data. Apart from weakness in the Pound Sterling, a broadly outperforming US Dollar has also been a major drag on the GBP/USD pair.
• The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades firmly near the 10-week high around 99.50.
• The US Dollar exhibits strength amid easing trade tensions between the United States (US) and China. Earlier in the day, China's Ministry of Commerce stated that high-level trade talks with Washington are ongoing. However, it warned that they would respond if the White House continues with "discriminatory practices" and "abusing export controls". "If there's a fight, we'll fight to the end; if there's a talk, the door is open," a spokesperson said, Reuters reported.
• US Treasury Secretary Scott Bessent has also confirmed a meeting between President Donald Trump and Chinese leader Xi Jinping in late October in South Korea.
• On the domestic front, investors await the speech from Federal Reserve (Fed) Chair Jerome Powell at the National Association for Business Economics (NABE) Annual Meeting in Philadelphia at 16:20 GMT. Investors will scrutinize Powell's words to get clues about the pace at which the Fed will continue loosening its monetary policy in the near term. Fed's Powell is expected to provide cues about the pace of the monetary-easing cycle for the remainder of the year.
• According to the CME FedWatch tool, traders see a 94% chance that the Fed will reduce interest rates by 50 basis points (bps) to 3.50%-3.75% until the end of the year.

Technical Analysis: Pound Sterling declines below 1.3300

The Pound Sterling slumps under 1.3300 against the US Dollar (USD) on Tuesday. The outlook for the GBP/USD pair has turned bearish as it has broken down from a Head and Shoulder chart formation on the daily time frame.

A declining 20-day Exponential Moving Average (EMA) around 1.3418 also suggests that the near-term trend is bearish.

The 14-day Relative Strength Index (RSI) trades below 40.00, suggesting a strong bearish momentum.

Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the psychological level of 1.3500 will act as a key barrier.