Sterling Softens as Jobs Data Cools Rate Hike Expectations – ING

Sterling traded on the soft side following UK labour market data, with EUR/GBP last at 0.85575. ING analyst Chris Turner noted in a report that EUR/GBP strengthened after the data release, with the bank's economist James Smith highlighting that the labour market is cooling and wage pressures remain limited, implying the Bank of England has little impetus for rate hikes this year.

**Employment Data Undermines Rate Hike Logic**

ING believes the latest labour market data paints a "slightly encouraging" but overall soft picture, with cooling employment and limited wage pressure jointly constraining the BoE's tightening room. Market signals suggest the recent strengthening in sterling was more driven by dollar weakness than domestic UK factors; once UK data turns weaker, the basis for sterling to strengthen independently is not solid.

**Technical Levels and Key Levels to Watch**

From a technical perspective, cable had previously touched near three-month highs, but momentum has not entered an accelerating phase. Upcoming UK inflation data will be a crucial variable: if CPI comes in firm and employment remains resilient, sterling could extend its rebound; conversely, if data clearly weakens, the recent upward structure may cool. ING had previously expected EUR/GBP to test the 0.860 level in the coming days, but the current price remains below that level.

**Dollar Factor Remains an External Variable**

Sterling's near-term direction is also tied to dollar moves. The market is still digesting expectations that the Federal Reserve will hold rates unchanged through year-end. If upcoming US inflation data comes in below expectations, the dollar could face further pressure, providing indirect support to sterling. For the UK itself, however, ING's stance is fairly clear: a cooling labour market coupled with limited wage pressure means the BoE has no justification for rate increases, and sterling lacks any upward catalyst from domestic monetary policy.