GBP/USD flat as UK unemployment rise boosts BoE rate cut expectations

• GBP/USD flat as UK unemployment rises to 5%, fueling speculation of December BoE rate cut.
• Private wage growth slows to 4.2% YoY, signaling cooling labor market and easing inflation pressures.
• US Senate passes funding bill to reopen government, lifting risk appetite ahead of House approval.

The Pound Sterling recovers some ground and trims some earlier losses on Tuesday following the release of softer than expected labor market figures in the UK, increasing speculation that the Bank of England could cut ratees at the December meeting. At the time of writing, the GBP/USD trades at 1.3172 virtually unchanged.

Sterling trims losses as weak labor figures boost BoE rate-cut expectations

Risk appetite improved after the US Senate approved the stopgap funding bill in a 60-40 vote, during the overnight session. Now the bill is headed to the House of Representatives where the leader of the Republicans and House Speaker Mike Johnson commented that he has the votes to approved it, to re-open the government.

Meanwhile, the lack of economic data keeps traders leaning into other data. The NFIB Small Business Optimism Index fell in October to 98.2 but stood above the 52-year average of 98. The Uncertainty Index fell 12 points from September to 88, the lowest reading of this year.

The NFIB Small Business Optimism Index declined 0.6 points in October to 98.2 but remained above its 52-year average of 98. The Uncertainty Index fell 12 points from September to 88, the lowest reading of this year.

"Optimism among small businesses declined slightly in October as owners report lower sales and reduced profits," said NFIB Chief Economist Bill Dunkelberg. He added "many firms are still navigating a labor shortage and want to hire but are having difficulty doing so."

In the UK, the latest jobs report showed that the Unemployment Rate rose by 5% in September, exceeding the Bank of England (BoE) estimates and for the second straight month. The data has increased the chances for the BoE to reduce interest rates at the December meeting, as private sector wages also moderated to 4.2% YoY, meaning that the jobs market continued to soften.

 Traders had priced 21 bps of BoE rate cuts for December, up from 17 bps before the jobs data, and 65 bps of easing by December 2026 versus 58 bps before.

GBP/USD Price Forecast: Technical outlook

The technical picture shows the GBP/USD seems to have peaked at around 1.3180 in the short term, with buyers remaining unable to crack 1.3200. A breach of the latter will expose the confluence of the 20 and 200-day SMAs at around 1.3248/68.

A decisive break or daily close below 1.3150 exposes the 1.3100 milestone, ahead of sellers driving the exchange rate towards the November 4 cycle low of 1.3010.