UK labour market data was mixed. Average Earnings excluding bonuses eased to 3.4% (three-month-on-year), matching forecasts, while including bonuses rose to 4.1% versus 3.8% expected.
Employment Change was 148K. The ILO Unemployment Rate increased to 5% from 4.9% expected and prior, and Claimant Count Change was above 26K.
Technical Levels And Momentum
GBP/USD fell during Tuesday’s London session, dipping below 1.34 before moving back towards that level by the close. The pair broke below the 50-day EMA last week and tested the 200-day EMA on Tuesday, which sits just below current levels.
A daily close below the 200-day EMA would bring 1.32 into view. The daily Stochastic RSI turned down from mid-range, pointing to further downside before oversold conditions.
Wednesday’s CPI is the next key release. Forecasts are for headline CPI to slow from 3.3% to 3% year-on-year, and core CPI to ease from 3.1% to 2.6%.
Later data includes Thursday’s S&P Global Composite PMI, expected at 51.7 versus 52.6, and Friday’s Retail Sales, forecast at -0.6% month-on-month.
Looking Back To Late 2025
We remember that period in late 2025 when the UK labour market was sending completely mixed signals. Average earnings were cooling, which the Bank of England wanted to see, but unemployment was also ticking up faster than expected. This confusion left the Pound vulnerable, as no clear policy path was evident.
The decisive moment came with the subsequent inflation data, which, as feared, showed a clean drop in core prices. UK headline CPI for that month fell to 2.9%, just below the 3.0% consensus, giving the doves the justification they needed. That data point was the final catalyst that pushed GBP/USD through the critical 200-day moving average we were watching.
Following that technical break below the 1.34 level, the slide towards 1.32 was swift, as there was little structural support. This set the stage for the Bank of England to finally pivot, and we saw them begin a shallow rate-cutting cycle in the first quarter of 2026. They delivered two 25-basis-point cuts, bringing the Bank Rate down to its current 4.50%.
Now, in May 2026, the situation has evolved once again, creating new opportunities. Recent data showed the UK economy grew by a surprisingly strong 0.6% in the first quarter, pulling well out of last year’s technical recession. Inflation has also fallen faster than anticipated, with the latest CPI print coming in at just 2.1%, very close to the BoE’s target.
This divergence between surprisingly strong growth and rapidly falling inflation creates uncertainty about the BoE’s next move. This uncertainty suggests higher future volatility, making long volatility strategies attractive. Buying GBP/USD straddles or strangles could prove profitable, as they benefit from a significant price move in either direction, regardless of which data point the BoE chooses to prioritize.
Given the market is still pricing in at least two more rate cuts this year, the risk is skewed towards a hawkish surprise from the Bank of England. The strong growth figures may force the MPC to pause its cutting cycle to avoid reigniting price pressures. Traders could position for this by using bullish option structures, such as call spreads, to cheaply bet on a short-term rally in Sterling if the market begins to price out further cuts.
