Sterling declined on Tuesday after new data revealed that UK employers slowed hiring and reduced job vacancies in April.
The Office for National Statistics reported that the fall in jobs was the largest since May 2020, when the COVID-19 pandemic began, although it noted the figures may be subject to revision.
Meanwhile, the US Dollar edged higher as investors balanced cautious optimism over potential easing tensions in the Middle East with concerns that the Federal Reserve could still raise interest rates this year.
The Pound fell 0.26% against a generally stronger US Dollar, trading at $1.3399 at the time of writing, following a 0.83% gain in the previous session.
Sterling’s earlier rebound was largely driven by reports easing investor concerns, including statements that potential Labour leadership contender Andy Burnham has ruled out altering the government’s self-imposed fiscal rules, Reuters news agency reports.
Greater Manchester Mayor Andy Burnham is reportedly aiming for a seat in parliament, a move that could position him to challenge UK Prime Minister Keir Starmer, who is facing growing pressure from within the Labour Party to step down.
Yet Starmer said on Monday that his leadership of the country is not over.
The Pound’s recent recovery has been muted this morning following the release of UK labour market data that came in significantly weaker than expected.
In addition, the latest UK labour market figures are likely to reduce expectations for near-term interest rate hikes by the Bank of England in response to the energy price shock.
However, money markets still anticipate a rate increase at the upcoming July Monetary Policy Committee meeting, indicating that investors are not fully pricing in the sharp decline in employment reported on Tuesday.
Analysts added that a swift resolution to the UK’s political uncertainty appears unlikely.
They noted that, depending on the result of the June by-election, a full leadership contest could be triggered, potentially extending through July and even into August.
During such a period of prolonged political instability, international investors may become more cautious about holding UK assets.