The British pound hovered around $1.30 on Tuesday, lingering near one-month lows, as investors weighed persistent global trade tensions and the latest batch of economic data from the UK.
British pound hovers near one-month lows
Initial optimism sparked by the announcement of a temporary 90-day reduction in US-China tariffs—which had provided a brief lift to risk appetite—gradually faded, giving way to renewed market caution. Traders remained wary that the fragile truce might not translate into a longer-term resolution, keeping broader sentiment subdued and limiting upside for the pound.
On the domestic front, the UK labor market showed further signs of strain. The unemployment rate ticked up to a 2021 high of 4.5% in April, in line with economists’ forecasts but marking the third consecutive monthly increase. At the same time, businesses continued to cut jobs for a third straight month, reflecting growing concerns over the deteriorating economic outlook amid weak consumer demand and ongoing post-Brexit trade frictions. The downturn in employment was particularly pronounced in manufacturing and retail sectors, which have faced sustained headwinds from both global supply chain disruptions and falling domestic sales.
Wage growth also moderated
Wage growth also moderated, though it remained relatively resilient by historical standards. Average earnings including bonuses rose at an annual pace of 3.4%, down from 3.7% in the previous month, but still above the 3% level typically seen as consistent with keeping inflation close to the Bank of England’s 2% target. However, with real wage growth slowing and consumer sentiment deteriorating, the data reinforced concerns that domestic spending may remain under pressure in the coming months.
In response to the softening economic backdrop, market expectations for additional monetary easing by the Bank of England edged higher. Last week, the central bank cut its benchmark interest rate by 25 basis points, as widely anticipated, but the decision was notably split, highlighting a growing divergence among policymakers over the appropriate course of action. Some members argued for a larger cut, citing weakening demand and inflation risks, while others preferred to hold rates steady, pointing to lingering uncertainties over the medium-term economic outlook.
Overall, the pound’s near-term direction is likely to remain driven by the interplay of domestic economic data, global risk sentiment, and signals from the Bank of England regarding the potential for further stimulus measures.
