British Pound Falls Against the Dollar: Weakening Job Market or Rate Cut?

The British pound remained below the $1.26 level amid signs of a weakening British job market and rising expectations of an interest rate cut. Data from the Recruitment and Employment Confederation (REC) revealed that salaries for permanent staff rose at the slowest rate in more than three years in March, while spending on temporary workers fell by the most since July 2020.

Weakening Job Market:

The REC’s data shows some worrying signs in the British labor market. Wage growth for permanent staff fell to 4.1% year-on-year in March, the lowest level since December 2019. Spending on temporary workers, on the other hand, fell by the biggest amount since July 2020. These data indicate that the British economy is slowing down and employers are hiring fewer staff.

Rate Cut Expectations:

Weak labor market data increased speculation that the Bank of England (BoE) may cut interest rates. The fact that two of the most hawkish members of the BoE withdrew their calls for a rate hike at the last meeting further strengthened these expectations. Currently, money markets are pricing in the BoE cutting rates by 70 basis points this year.

Strong Employment Report from the US:

The strong employment report from the US may change the Fed’s stance on rate cuts. The US economy added 303,000 new jobs in March, the largest increase in 10 months. The unemployment rate unexpectedly fell to 3.8%. These data suggest that the US economy is still strong and the Fed does not need to cut interest rates.

Conclusion:

The fall of the British pound against the dollar is linked to a weakening job market and rising expectations of a rate cut. The strong employment report from the US may change the Fed’s stance on rate cuts. It remains to be seen whether the BoE will cut interest rates in the coming period and how this will affect the pound.