Sterling Climbs on Mixed UK Labour Data While Wage Growth Moderates

The British pound strengthened notably in recent trading, approaching 1.3480 against the US dollar after the UK released employment figures for the three-month period ending November. The data painted a nuanced picture: unemployment held firm at 5.1%—resisting market expectations for a decline to 5%—while the labour force added 82,000 positions, marking a reversal from October’s 17,000-job loss. Crucially for sterling investors, wage dynamics shifted toward moderation, a development with significant implications for Bank of England policy decisions in the coming months.

Employment Data Sends Conflicting Signals on Rate Cuts

The employment report presented contradictory indicators that left investors parsing competing narratives. On one hand, job creation of 82,000 represented genuine labour market resilience, rebounding from the previous quarter’s decline. Yet the unemployment rate’s stubborn resistance to improvement, combined with moderating wage pressures, created an environment ripe for monetary easing. Market participants interpreted these mixed signals as supporting the likelihood of interest rate reductions, potentially beginning sooner than initially anticipated as inflation pressures continue to ease.

Wages Decelerate Amid Inflation Expectations Shift

The deceleration in wage growth proved particularly significant for sterling’s trajectory. Average earnings excluding bonuses expanded at an annual rate of 4.5%, matching forecasts but falling short of the prior 4.6% gain. When bonuses were included, compensation climbed 4.7%—exceeding the 4.6% consensus but trailing the revised prior reading of 4.8%. This cooling in wage growth, emerging even as employment recovered, suggested that inflation pressures were truly receding. Bank of England officials, including Monetary Policy Committee member Alan Taylor, have already begun signalling that price growth could revert toward the central bank’s 2% target by mid-2026, potentially even sooner. Such commentary implies that rate cuts may commence within the near term, providing a tailwind for sterling valuations as carry trades become less attractive and bond yields stabilise at lower levels.

Dollar Weakens on US-EU Trade Tensions

Meanwhile, the US currency faltered on geopolitical and trade headwinds. The dollar index, which measures the greenback against a basket of major peers, declined 0.13% to near 98.90 during the same session. “Sell America” sentiment intensified following recent tariff disputes between Washington and European capitals, with tensions centered on the contentious Greenland acquisition question. President Trump’s imposition of 10% tariffs on select EU nations and the UK, coupled with threats of escalation, prompted sharp rebukes from Brussels and London. Prime Minister Keir Starmer and EU officials accused the US administration of weaponising trade policy to pursue geopolitical objectives. Strategists warned that prolonged transatlantic friction could undermine confidence in American leadership, strain crucial international relationships, and diminish demand for US assets over an extended horizon.

Domestically, attention will soon turn to the Federal Reserve’s preferred inflation gauge—the Personal Consumption Expenditure Price Index for October and November—due Thursday. According to CME FedWatch data, traders overwhelmingly expect the Fed to maintain rates at current levels during this month’s policy meeting, underscoring the patience markets anticipate from the central bank despite ongoing economic complexities.

Technical Picture Supports Further Sterling Upside

From a technical standpoint, sterling has constructed a constructive setup against the dollar. At current levels near 1.3480, the pair trades comfortably above its 20-day exponential moving average (EMA) of 1.3433, which provides near-term support. The flattening trajectory of this moving average suggests consolidation following the recent rally, with the 14-day relative strength index at 57 confirming a neutral-to-mildly-bullish momentum state. On the upside, the 61.8% Fibonacci retracement level sits at 1.3491, acting as resistance. A daily close above this threshold could unlock a push toward the 78.6% retracement at 1.3622. Conversely, failure to hold above the 20-day EMA would signal a more substantial pullback. Overall, the technical configuration favours sterling bulls in the near-to-intermediate term, contingent upon continued support from macroeconomic narratives favouring Bank of England rate reductions.