The UK ILO unemployment rate held at 5.2% in the three months to January, against a forecast of 5.3%, according to the ONS. Employment rose by 84K, up from 52K previously. Average earnings excluding bonuses rose 3.8% year on year, below forecasts of 4.0% and down from 4.1% (revised from 4.2%). Average earnings including bonuses rose 3.9% year on year, in line with expectations and down from 4.2% in the quarter to December.

Labour Market And Sterling Reaction

After the release, GBP/USD fell to near 1.3250 from earlier levels. Earlier coverage previewed a February claimant count change of 25.8K versus 28.6K in January, with the claimant count rate previously at 4.4%. The preview also set wage forecasts at 3.9% including bonuses and 4.0% excluding bonuses, with unemployment seen at 5.3%. It noted the Bank of England decision due later, and said markets had moved from pricing an 80% chance of a March cut before the Iran conflict. It also reported the Fed left rates unchanged at 3.50%–3.75%. Technical levels cited included RSI 38, support at 1.3218, and resistance at 1.3323 and 1.3445. Looking back at the jobs data from early last year, we saw that cooling wage growth was a key driver for the pound’s weakness. Even though unemployment held steady, the market focused on the reduced pressure for the Bank of England to raise interest rates. That report in 2025 sent GBP/USD down toward 1.3250 as traders priced in a more cautious central bank.

Bank Policy Divergence And Trade Implications

The situation today, in March 2026, presents a more challenging picture for the UK. The latest figures from February show the unemployment rate has now crept up to 5.5%, while wage growth remains stubbornly high at 4.6% due to persistent inflation, which is currently running at 3.8%. This stagflationary environment, with weak growth and high price pressures, continues to weigh on the pound. This puts the Bank of England in a difficult position, forcing it to hold interest rates steady to fight inflation, despite the weakening economic activity. In contrast, the US Federal Reserve has managed to bring inflation down closer to its target, allowing it more policy flexibility. The ongoing policy divergence between a stuck BOE and a more nimble Fed suggests a continued downward trajectory for the GBP/USD pair. Given this outlook, we believe traders should consider positioning for further weakness in the pound against the US dollar. One straightforward strategy is to buy GBP/USD put options with expiries in the coming one to two months. This approach allows for profiting from a decline in the exchange rate while limiting the potential loss to the premium paid for the option. Furthermore, implied volatility in the pound has been increasing due to the economic uncertainty and geopolitical tensions stemming from the ongoing Iran conflict. Traders should monitor volatility levels, as a sharp spike could make options more expensive but also present opportunities. This environment suggests that any short-term rallies in GBP/USD are likely to be sold into, reinforcing the bearish outlook. Create your live VT Markets account and start trading now.

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