**GBP/USD Edges Higher as UK Jobs Data Eases BoE Pressure, Fed Doves Resurface**
*By Anil Panchal, FXStreet*
The GBP/USD pair moved modestly higher on Wednesday, buoyed by softer-than-expected UK employment data that eased pressure on the Bank of England (BoE) to maintain its hawkish stance. Meanwhile, dovish signals from the Federal Reserve further supported the pair’s upside amid shifting global macroeconomic currents.
### UK Labor Market: Signs of Cooling
The latest UK labor data released on Wednesday revealed unexpected softness in the jobs market, cooling from previous months and suggesting that wage-driven inflation may be losing momentum. This development has notable implications for the BoE’s monetary policy trajectory.
Key points from the UK labor report:
– **Unemployment Rate:** Ticked higher, surpassing expectations. According to the Office for National Statistics, the unemployment rate increased to 4.5 percent, above the consensus estimate of 4.3 percent.
– **Jobless Claims:** Claimant Count Change rose by 30,000, surprising economists who anticipated a lower figure.
– **Wages:** Average Earnings Excluding Bonus eased to 5.7 percent in May (YoY), retreating from the previous reading of 5.9 percent, highlighting a slowdown in wage inflation.
These figures are significant as persistent wage growth has been a major concern for the BoE, which has kept rates elevated to counter inflation. The latest report provides the first clear signal that labor market conditions are loosening, potentially paving the way for monetary easing sooner than previously anticipated.
### BoE Policy Outlook: Easing Hawkish Pressure
Market expectations for BoE policy have shifted following the jobs data release. The prospect of a near-term rate cut has increased, and traders have now priced in a higher probability that the central bank will act before the end of the summer.
Some factors supporting this view:
– **Cooling wage growth:** Slower wage increases are likely to reduce the risk of “second round” inflation effects tied to labor costs.
– **Rising unemployment:** A higher jobless rate presents downside risks for future economic growth, warranting a more accommodative stance.
– **Market expectations:** Swap markets now fully price in at least one 25 basis point cut by September, up from earlier predictions of a later move.
Despite easing inflation and wage pressures, some BoE officials have warned that any rate cut would be gradual and dependent on further confirming data. Governor Andrew Bailey recently emphasized the importance of “firm evidence” before making decisive moves, though Wednesday’s data certainly adds weight to the dovish case.
### UK Macroeconomic Context
The UK economy returned to growth in early 2024, posting modest expansions in gross domestic product after last year’s technical recession. However, mixed data over the past several weeks has kept traders cautious.
Recent developments include:
– **GDP Surprises:** Latest GDP figures beat expectations with a 0.4 percent growth in May, suggesting resilience despite high borrowing costs.
– **Inflation Trajectory:** Consumer Price Index (CPI) has cooled notably, with the latest annual figures coming in just above the BoE’s 2 percent target. Core inflation, however, remains sticky.
– **Political Stability:** The July elections have delivered a majority government, reducing political risk and boosting near-term certainty for businesses and consumers.
Despite the tepid recovery, economic risks remain tilted to the downside, especially if persistent tight policy continues to weigh on household spending and investment. This context explains why easing labor market data is so pivotal for rate-setters.
### Federal Reserve Outlook: Dovish Tones and Dollar Impact
On the other side of the Atlantic, the US dollar retreated after fresh dovish commentary from Federal Reserve officials. Several policymakers, including Chairman Jerome Powell, signaled a growing willingness to consider rate cuts should inflation continue its recent moderation.
Key highlights:
– **Powell Testimony:** Powell indicated
Read more on GBP/USD trading.