Pound Falls as UK Job Market Slows and BoE Decision Nears.
The British Pound (GBP) dropped slightly on Thursday, March 20, 2025, after the latest UK labor market report showed steady job growth but signs of a possible slowdown. Investors are now waiting for the Bank of England’s (BoE) interest rate decision, which could impact the currency’s direction.
UK Job Market Report
The Office for National Statistics (ONS) released new job market data for the three months ending in January:
Unemployment Rate: Stayed at 4.4%, matching forecasts.
Job Growth: The UK added 144,000 new jobs, beating the 107,000 jobs added in the previous report.
Wage Growth: Salaries (excluding bonuses) rose by 5.9%, the same as the last release.
Despite these positive numbers, businesses are planning to freeze hiring due to rising costs. The UK government recently raised employer National Insurance (NI) contributions from 13.8% to 15%, effective in April. This could hurt job growth in the coming months.
What to Expect from the BoE
The BoE expected to keep interest rates at 4.5% when it announces its decision at 12:00 GMT.
The Monetary Policy Committee (MPC) is expected to vote 7-2 in favor of keeping rates unchanged.
Two members, Catherine Mann and Swati Dhingra, may push for a rate cut, as they did in February when they supported a larger 50 basis point (bps) cut instead of the 25 bps reduction approved by the rest of the committee.
If job growth slows further, the BoE may start cutting rates sooner than expected to support the economy.
Pound Drops Against US Dollar
The Pound fell to around 1.2970 against the US Dollar (USD) in European trading but remains close to its five-month high of 1.3014.
This comes after the US Federal Reserve (Fed) decided to hold interest rates steady on Wednesday, keeping them at 4.25%-4.50% for the second straight meeting.
What’s Happening in the US Market?
The US Dollar Index (DXY), which tracks the USD against major currencies, stayed around 103.50.
The Fed still expects to cut interest rates twice this year, as mentioned in its December meeting.
Fed Chair Jerome Powell warned that tariffs from President Donald Trump have caused economic uncertainty, which could reduce growth and increase inflation.
The Fed raised its inflation forecast to 2.8% (from 2.5%) and lowered its GDP growth forecast to 1.7% (from 2.1%).
Trump responded by urging the Fed to cut rates immediately, saying it would help ease the impact of tariffs on the economy.
Upcoming US Economic Data
Investors are also watching the US Initial Jobless Claims report, set to be released at 12:30 GMT.
The report expected to show that jobless claims rose to 224,000, up from 220,000 in the last release.
If US job numbers start to weaken, the Fed might cut rates sooner, which could impact the strength of the US Dollar.
How the UK and US Economies Affect the Pound.
UK Job Market and BoE Policy
Higher employer costs could slow hiring and weaken the job market.
If the economy slows, the BoE may start cutting rates sooner than expected.
US Interest Rates and Economic Outlook
The Fed is holding off on rate cuts for now, but high inflation could change that.
If the US job market weakens, the Fed could cut rates earlier, which may lower the USD and help the GBPUSD pair rise.
The difference between UK and US interest rate policies will continue to influence the GBPUSD exchange rate.
What’s Next for the Pound?
The Pound remains near its five-month high, but its future will depend on:
The BoE’s policy decision and future guidance.
US job market data and Fed rate cut expectations.
Market reaction to rising UK employer costs.
As traders and investors react to new economic data, GBPUSD will likely see more volatility in the coming weeks.
Conclusion
The Pound Sterling dropped after the latest UK labor market data, as investors worry about slower job growth and rising employer costs. Meanwhile, the BoE is expected to keep rates steady, but future rate cuts may come sooner if the economy weakens.
At the same time, the US Federal Reserve’s cautious approach and ongoing trade policies are creating uncertainty in global markets. With key data releases ahead, the Pound’s movement will depend on how BoE and Fed policies evolve in the coming months.
