British Pound advances against Euro as UK jobs data strengthens BoE hike bets

• The British Pound strengthens following better-than-expected UK employment data.
• Markets price in a 95% probability of a BoE interest rate hike at the November 5 meeting.
• Expectations of further ECB tightening offer limited support to the Euro amid political uncertainty.

EUR/GBP loses 0.38% on Tuesday as stronger-than-expected UK labour market data lifts the Pound Sterling (GBP). At the time of writing, the cross trades around 0.8395, at levels last seen in May 2025.

Data released by the Office for National Statistics (ONS) shows employment rose by 102,000 in the three months to August, up from a gain of 67,000 in the previous period. The unemployment rate unexpectedly fell to 4.7%, its lowest level since July 2025. Meanwhile, regular earnings excluding bonuses increased by 3.7% YoY, above expectations of 3.6% and the previous reading, which was revised up to 3.6%.

The stronger labour market figures give the Bank of England (BoE) more room to address energy-driven inflation pressures stemming from the war in the Middle East. The central bank has kept interest rates unchanged at 3.75% so far this year.

Strategists at BBH note that “GBP is up against most major currencies” after UK August labor market data “reinforced the case for a BoE 25bps policy rate hike to 4.00% on November 5.” They point out that “the swaps curve implies 95% odds of a November BoE rate hike and 100bps of tightening in the next twelve months,” but caution that, “in our view, the BoE may not need to tighten as much as markets anticipate, which is a headwind for GBP.”

BBH argues that “the UK economy is operating below capacity, the policy rate is near the top of the BoE’s estimated 2% to 4% neutral range, and fiscal policy will likely turn more restrictive following the October 28 UK budget,” all of which suggest the central bank may ultimately deliver less tightening than is currently priced.

Meanwhile, the Euro (EUR) remains on the defensive as escalating social unrest across France, Italy and other European countries heightens concerns over fiscal stability and political uncertainty. On the monetary policy front, the European Central Bank (ECB) has raised interest rates twice this year to counter inflation pressures from higher Oil prices. Markets are pricing in further tightening as inflation remains above the central bank’s 2% target.

Economists at Commerzbank acknowledge that “core inflation in the euro area is currently rising only slowly,” but stress that a closer look at the data shows “high energy prices are already pushing up the prices of goods and services.” They argue that this indirect effect is set to strengthen, with “next year, this indirect effect… likely to intensify noticeably, causing the core rate to rise further.”

According to Commerzbank, “core inflation is expected to rise from its current level of 2.5% to over 3% by the fall of next year,” as companies that have been paying elevated energy costs “for more than half a year… are now increasingly passing these costs on.” Against this backdrop, the bank expects the ECB’s projections to move higher, noting that “based on our current forecasts, the ECB is likely to raise its expectations again in December. This supports our expectation of an ECB interest rate hike in December.”