Sterling strengthens to three-week high

The British pound climbed to $1.355, a three-week high, after UK labour market data showed smaller-than-expected job losses in July, easing fears of a sharper economic slowdown.

Payrolls fell by just 8,000, well below consensus forecasts of a 20,000 drop, while previous months’ figures were revised lower, reinforcing the view that the labour market remains resilient despite headwinds from the Labour government’s £26 billion tax package.

The unemployment rate held steady at 4.7%, suggesting stability in headline employment, while private-sector wage growth eased marginally to 4.8% from earlier highs. Although this marks a gradual cooling, wage growth remains well above the Bank of England’s 2% inflation target, highlighting the persistent risk of domestically driven price pressures.

The data underscores the BoE’s policy dilemma: balancing the need to address sticky inflation with the risks of overtightening into a labour market that is showing early signs of softness. This comes just a week after the central bank delivered a narrow 25 basis point rate cut — a move that split policymakers and left markets debating the path of future easing.

Investor attention now turns to Friday’s release of Q2 GDP, which is expected to show a modest 0.1% expansion. A stronger-than-expected reading could reinforce sterling’s gains, while a miss might revive expectations for further rate cuts before year-end. On the international front, trade and geopolitical developments are adding another layer of uncertainty.

The US–China tariff pause has been extended for 90 days, while a high-stakes meeting between US President Donald Trump and Russian President Vladimir Putin on Ukraine is scheduled for Friday — events that could sway global risk sentiment and currency flows.

The pound’s rally was also supported by a weaker US dollar, as softer US inflation data fueled bets that the Federal Reserve will deliver a rate cut in September. This combination of domestic labour market resilience and shifting global monetary policy expectations has given sterling a short-term boost, though analysts caution that upcoming GDP figures and geopolitical outcomes could quickly alter the currency’s trajectory.