The cooling of the UK job market triggers expectations of a rate cut upgrade, causing the pound to hit a new low against the dollar since August.

The impact of the UK labor market employment data on traders has led to continued increase in bets on a rate cut by the Bank of England, causing the pound to dollar exchange rate to fall to its lowest level in over two months, while UK gilt bonds of all maturities have generally risen. The pound gave back most of its gains and fell by up to 0.6% to $1.3253, unexpectedly hitting its lowest level since August 1. The market currently predicts that the Bank of England will cut interest rates by nearly 9 basis points by the end of the year, higher than the market expectations prior to the labor report announcement that the Bank of England would not cut interest rates. The latest employment report shows an unexpected rise in the UK unemployment rate, with private sector wage growth slowing significantly beyond economists' expectations, signaling a major negative signal for the crucial UK labor market. Following the data release, UK government bond prices across all maturities strengthened. The 10-year UK Gilt yield fell by up to 5 basis points to 4.60%, hitting the lowest level since mid-September, with falling bond yields indicating a rise in bond prices. The options market also reflects a significant bearish signal for the pound, with the so-called "risk reversal" indicator showing that options traders are betting that the UK sovereign currency will continue its recent decline. The current market focus is shifting to a two-month forward period, covering the UK autumn budget period. However, Valentin Marinov, a strategist at Credit Agricole SA in London, stated that the pound's decline may be temporary, as this unemployment report does not substantially change market expectations for the Bank of England's interest rate path. "After the data release, the pound weakened slightly, but this is hardly a game changer that would shake the Bank of England's currency policy rules, as although the Bank of England is leaning towards a hawkish stance, some policymakers are still discussing whether and when to cut rates again," Marinov wrote. "Therefore, any decline in the pound's exchange rate may be limited in the very short term." Modupe Adegbembo, an economist at the Wall Street financial giant J.P. Morgan International, stated: "The latest economic data undoubtedly reinforces the dovish stance within the Bank of England Monetary Policy Committee. We still believe that the market underestimates the possibility of further rate cuts by the Bank of England this year and underestimates the path of rates eventually falling lower." The current Bank of England benchmark interest rate (Bank Rate) is maintained at 4.00%. The September monetary policy meeting was maintained with a majority of 7:2, with a minority of members advocating for another 25 basis point cut, but the prevailing view at the time and the expectations of many institutions was that there would likely be no further cuts until 2025, and whether there would be further cuts would depend on the pace of inflation decline and labor market data, with the next substantial action likely to be in early 2026. However, market expectations for another rate cut before the end of the year have increased following the release of the latest weak labor market data. Since the start of the easing cycle in August 2024, the Bank of England has lowered interest rates 5 times, for a total of 125 basis points (25bp each time). The recent remarks of Bank of England Monetary Policy Committee members have been highly polarized: Megan Greene emphasizes caution in maintaining sticky inflation and tends to slow down or even "skip" subsequent rate cut cycles, with an overall tone leaning towards a data-dependent delayed easing; Swati Dhingra openly advocates for faster rate cuts.