GBP/USD Eyes 1.3550 as UK Labour Market Shows Signs of Stabilisation

The UK labour market may finally be finding its footing after two years of weakness. With employment showing early signs of recovery and the Bank of England expected to tighten monetary policy, sterling could find further support as GBP/USD establishes a bullish technical breakout.

UK employment begins to turn a corner

After a prolonged period of weakness, the UK labour market is beginning to show tentative signs of stabilisation.

September saw private-sector payrolls increase by 8,000, marking the first monthly rise since January. The hospitality sector also recorded a modest improvement, while the unemployment rate eased from 4.9% to 4.7%.

However, the recovery remains fragile. Part of the decline in unemployment reflects rising economic inactivity rather than stronger hiring, while employment figures remain vulnerable to revisions.

Nevertheless, the broader picture suggests the pace of deterioration may finally be easing.

What does this mean for the Bank of England?

Importantly, a stabilising labour market does not necessarily signal renewed inflationary pressure.

Private-sector wage growth, adjusted for compositional effects, stands at approximately 3.4%, while the latest one-month annualised reading has slowed to just 1.7%.

This suggests that domestic wage pressures remain relatively contained, despite the inflationary risks associated with higher energy prices.

Attention now turns to the Bank of England, with a November interest-rate increase looking increasingly likely.

However, the motivation behind potential tightening is important. Rather than responding to accelerating economic activity, policymakers may be seeking to prevent higher energy costs from feeding into broader inflation expectations.

For sterling, this creates an interesting backdrop. Expectations of higher UK interest rates could provide near-term support through interest-rate differentials, particularly if the Federal Reserve follows a less restrictive path.

That said, tomorrow’s UK inflation report will be crucial in determining whether the market maintains its current policy expectations.

GBP/USD technical outlook: 1.3550 in focus

Turning to the four-hour chart, GBP/USD has established an encouraging bullish structure following its recovery from the October lows.

The pair has broken above the 1.3310 resistance level, which previously capped upside attempts, and is now attempting to establish this area as support.

Provided buyers defend this breakout, the technical picture favours further upside.

Initial resistance sits around 1.3450, corresponding to the 61.8% Fibonacci retracement. Beyond this, the 1.3545–1.3560 region represents a more significant resistance zone, where previous price structure and the 100% Fibonacci projection converge.

A sustained move through this area could eventually open the door towards 1.3700, although that remains a more extended bullish scenario.

Conversely, a decisive move back below 1.3310 would weaken the immediate bullish outlook and raise the possibility of renewed consolidation.

The bottom line

The UK economy is not necessarily accelerating, but the labour market appears to be deteriorating less rapidly. Combined with the prospect of further Bank of England tightening, this may offer sterling some near-term support.

With GBP/USD holding above its recent breakout level, the technical bias remains constructive, placing 1.3450 and subsequently 1.3550 firmly in focus.

The next test will be whether tomorrow’s inflation figures reinforce or challenge this outlook.