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GBP/JPY Slumps After Dismal UK Employment Figures Spark Dovish BoE Bets
Economic
Summary:
GBP/JPY fell to 195.10 after weak UK jobs data, with unemployment rising to 4.6% and jobless claims surging 33,100 in May, fueling BoE rate cut bets.
Sell
CLOSEDGBPJPY
End Time
195.400
Entry Price
193.000
TP
196.600
SL
195.594 +0.197 +0.10%
253
Points
Profit
193.000
TP
195.147
CLOSING
195.400
Entry Price
196.600
SL
The British Pound took a hit against the Japanese Yen on Tuesday, with GBP/JPY tumbling after a disappointing UK employment report fueled speculation that the Bank of England (BoE) may be forced to cut interest rates sooner than anticipated. The pair, which had flirted with the 196.00 psychological level before the data release, erased recent gains and was trading near 195.10 by mid-afternoon, aligning with the 78.6% Fibonacci retracement of its January-to-April decline. The weakening UK labor market, coupled with a strengthening Yen amid cautious optimism from the Bank of Japan (BoJ), has tilted the scales in favor of sellers, raising questions about the Pound’s resilience in an increasingly uncertain economic climate.
The Office for National Statistics (ONS) released its latest labor market report, painting a picture of a UK economy grappling with softening conditions. The International Labour Organization (ILO) unemployment rate ticked up to 4.6% in the three months to April 2025, up from 4.5% in the prior quarter, marking the highest level since summer 2021. While the figure met economists’ expectations, it underscored a gradual loss of momentum in the labor market, a critical driver of economic activity.
More concerning was the Claimant Count Change, which revealed a sharp rise in jobless benefit claims. In May, claims surged by 33,100, reversing April’s revised decline of 21,200 and overshooting forecasts for a modest increase of 9,500. This spike suggests that businesses, battered by rising costs, are scaling back hiring or shedding jobs altogether. The employment change data further darkened the outlook, with only 89,000 jobs added in the three months to April, down from 112,000 in March, signaling a slowdown in job growth as economic activity cools.
Adding to the gloom, payroll data showed a steep drop of 109,000 employees in May, the largest monthly decline since May 2020, bringing the total to 30.2 million. The ONS also reported a 63,000 fall in job vacancies to 736,000 in the March-to-May period, marking the 35th consecutive quarterly decline. These figures reflect a labor market under strain, with firms hesitant to hire amid rising employer costs, including a recent hike in National Insurance contributions to 15% on salaries above £5,000 (up from 13.8% on salaries above £9,100) and a 6.7% increase in the minimum wage for workers over 21.
Liz McKeown, ONS director of economic statistics, noted, “There continues to be weakening in the labour market, with the number of people on payroll falling notably. Feedback from our vacancies survey suggests some firms may be holding back from recruiting new workers or replacing those who leave.” This cautious approach, driven by higher payroll taxes and global economic uncertainty, is stifling job creation and weighing on consumer confidence.
The softening labor market has intensified scrutiny on the BoE’s monetary policy stance. With wage growth easing to 5.2% (down from 5.6%) in the three months to April, inflationary pressures from salaries are moderating, potentially giving the BoE room to lower rates. UK inflation, revised to 3.4% in April after an ONS data correction, remains above the BoE’s 2% target, but the cooling jobs market could tip the balance toward dovish policy.
Market sentiment shifted decisively after the jobs report, with the OIS curve repricing in a dovish direction. Traders now see a 73% chance of a 25-basis-point rate cut in August, up from 66% before the data, and expect 46 basis points of easing by year-end, compared to 41 basis points previously. “The employment drop was much deeper than forecasts, and markets are reacting with GBP softness as traders price in a possible BoE pivot,” said one X post, capturing the mood.
Richard Carter, head of fixed interest research at Quilter Cheviot, warned, “With increased National Insurance contributions now bedded in, the employment picture is deteriorating as companies scale back hiring, and in some cases cut their UK workforce significantly. This complicates the BoE’s task, as slowing wage growth is offset by rising inflation risks.” The BoE’s next meeting, scheduled for next week, is unlikely to yield a rate cut, but analysts like Danni Hewson of AJ Bell suggest a summer cut is increasingly likely if labor market weakness persists.
On the other side of the GBP/JPY pair, the Japanese Yen is finding support as the BoJ signals a potential shift toward tighter policy. BoJ Governor Kazuo Ueda reiterated on Tuesday that the central bank would consider raising interest rates if inflation approaches or stabilizes around the 2% target. “We will raise rates if we have enough confidence that underlying inflation nears 2%,” Ueda said, tempering expectations but keeping the door open for a hike.
Japan’s Producer Price Index (PPI) for May, due Wednesday, is forecast to rise 0.3% month-on-month, up from 0.2%, which could further bolster the Yen if it signals rising cost pressures. With Japan’s economy contracting in Q1 2025 and the BoJ maintaining ultra-low rates, the narrowing interest rate differential with the UK is putting downward pressure on GBP/JPY.
Technical Analysis
From a technical perspective, GBP/JPY is flashing warning signs for bulls. The pair has respected a key resistance zone near 196.00, formed by a bearish engulfing pattern on the daily chart on May 14. On the 4-hour timeframe, a fresh bearish engulfing candle has emerged at this resistance, suggesting sellers are seizing control.Price is now at the highest point of this resistance, and the strong bearish engulfing indicates sellers are taking charge.
The 78.6% Fibonacci retracement level at 195.29 is providing temporary support, but a break below could see the pair target the 194.00 region or the 61.8% Fibonacci level near 193.50. Conversely, a reclaim of 196.00 would signal renewed bullish momentum, though the fundamental backdrop makes this less likely in the near term.
TRADE RECOMMENDATION
SELL GBPJPY
ENTRY PRICE: 195.40
STOP LOSS: 196.60
TAKE PROFIT: 193.00
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