UK labor market cools, US CPI next, Pound steady

The British pound has edged higher on Tuesday. In the European session, GBP/USD is trading at 1.3218, up 0.34% on the day.

UK employment, wages cool

Uncertainty over the global economy, particularly US tariff policy, weighed on the UK employment report. The economy added 112 thousand jobs in the three months ending in March, down sharply from 206 thousand a month earlier and shy of the market estimate of 120 thousand. It was the weakest job growth in three months.

The unemployment rate inched up to 4.5% from 4.4%, in line with expectations and its highest level since August 2021. Wage growth including bonuses eased to 5.5% from a revised 5.7%, above the market estimate of 5.2%.

The Bank of England cut rates by a quarter-point to 4.25% last week but remains in a bind. The cooling job market should push inflation lower but wage growth remains stubbornly high and is an upside risk to inflation. The BoE will have to carve out a rate path that balances a weaker labor market with high wage growth - this could mean a delay in further rate cuts until late in the year. The BoE meets next on June 19.

US CPI expected to rise in April

The US releases the April inflation report later today. Headline CPI is expected to rise to 0.3% m/m, up from -0.1% in March, which marked the first decline since June 2024. Annually, headline CPI is expected to remain unchanged at 2.4%. Core CPI is also expected to climb to 0.3% from 0.1%. Annually, core CPI is projected to remain at 2.8%.

The escalating trade tensions due to US tariffs have raised concerns that US growth will fall and inflation will decline, even resulting in a recession in the US. The US-China agreement to slash tariffs, which will be in effect for 90 days, is an important de-escalation in the trade war and should curtail inflation and reduce the risk of a recession.

GBP/USD technical

• GBP/USD is testing resistance at 1.3205. Above, there is resistance at 1.3271.
• 1.3112 and 1.3046 are the next support levels.