Sterling retreated on Tuesday after fresh labour-market data deepened concerns about the UK economic outlook and compounded an already fragile political backdrop. The modest recovery the pound achieved a day earlier was reversed as markets digested the latest official statistics.
As of 08:05 ET (12:05 GMT), GBP/USD was quoted 0.10% lower at 1.3409, while EUR/USD fell 0.32% to 1.1619 as the dollar found broad support.
The Office for National Statistics released a bruising set of labour figures. Payrolled employees fell by an estimated 100,000 in April from March - the largest monthly reduction since the COVID-19 pandemic. Unemployment unexpectedly rose to 5.0% in March, moving back toward ten-year highs.
Revisions added to the disappointment: March payrolls were revised down to show a decline of 28,000 jobs versus the previously reported 11,000 drop. The claimant count also rose by more than markets had expected.
Analysts highlighted the complex implications of the weakness for fixed income markets. Capital Economics argued the labour-market deterioration could paradoxically put a ceiling on gilt yields. Their view is that the Iran conflict appears to be prompting businesses to cut headcounts rather than raise pay, which in turn is blunting the inflationary impulse traders had been pricing into markets.
Despite soft labour data, the UK rates market still incorporates the expectation of a Bank of England rate hike at the July Monetary Policy Committee meeting, indicating investors are not fully abandoning the prospect of further tightening.
Political developments added another dimension to the market backdrop. Greater Manchester Mayor Andy Burnham is campaigning for a Westminster seat via the Makerfield by-election and is positioning himself as a potential challenger to Prime Minister Keir Starmer, who is reported to be facing mounting pressure from within Labour to resign. Analysts warned that a full leadership contest could extend into August - a drawn-out period of uncertainty that is likely to keep international investors cautious on UK assets.
On the currency side, dollar resilience limited sterling's room to recover. Expectations of further Fed rate increases continued to channel flows toward the greenback, even as tentative signals of peace in the Middle East provided only a brief lift to overall market sentiment.
In aggregate, markets are balancing weaker UK labour statistics, political uncertainty and a still-firm dollar. That mix has left sterling subdued and kept attention on how domestic economic data and political developments will interact with global yield and policy expectations.