British Pound maintains its bid tone buoyed by upbeat UK unemployment figures

• GBP/USD appreciates 0.3% so far on Tuesday and hits session highs above 1.3350.
• The UK ILO Unemployment Rate declined unexpectedly, but jobless claimants are growing while vacancies plunge.
• The US Dollar remains on its back foot on dwindling hopes of an October Fed rate hike.

The British Pound (GBP) has resumed its immediate bullish trend against the US Dollar (USD) on Tuesday, favoured by better-than-expected UK unemployment figures, although the whole employment report contains significant warnings. The GBP/USD appreciates 0-3% on the day, reaching session highs above 1.3350 more than 200 pips above last week’s bottom.

Data released by the UK Office for National Statistics on Tuesday revealed that the ILO Unemployment Rate declined unexpectedly to 4.7% in the three months to August, reaching its lowest rate in more than one year.

Looking through the details, however, the reports also shows concerning figures, as data from September revealed that the amount of claimants for unemployment benefits increased to 30.3K in September, from 27.8K in August, well above the 19.4K increase forecasted by market analysts. Beyond that, the number of vacancies has seen the largest fall since the start of the year, and the report suggests that the high labour costs may be deterring businesses to hire new employments.

The US Dollar dips as investors brace for October’s Federal Reserve meeting

The British Pound is drawing support from a somewhat weaker US Dollar as investors reprice expectations of further Federal Reserve (Fed) monetary tightening. A string of Fed policymakers requested some more time last week to assess the impact of September’s rate hike, and markets scaled down expectations of an October hike to a 17% chance from nearly 60% one month ago, according to data by the CME’s FedWatch Tool.

Beyond that, rising concerns about AI profitability have been weighing on equity markets, especially in Asia, and are posing increasing pressure on the on the US Dollar. Analysts at MUFG highlight that US financial markets have been “a major beneficiary of strong foreign investor demand driven by AI-related optimism,” with foreign investors purchasing “USD942 billion of US equities in the twelve months to July.” The bank's experts assess that “this dynamic also leaves the USD more exposed to a reversal if sentiment towards AI deteriorates.”

In the US calendar on Tuesday Pending Homes Sales are expected to have contracted in September, while Housing Starts are forecast ticking up from August and Building Permits showing steady levels. In the UK, the highlight of the week will be Wednesday’s consumer inflation data, which might shed some more light on the Bank of England’s near-term monetary policy.