The pound fell against the dollar and euro on Tuesday after data showed that the U.K. economy added fewer jobs than expected in the three months to March.
The Office for National Statistics said employment rose by 182,000 in the quarter, below consensus forecasts for 200,000. The unemployment rate is unchanged at 3.8%.
Weaker-than-expected jobs data weighed on sterling, which dropped to $1.2570 against the dollar and 84.13 pence against the euro.
Analysts say the data shows the U.K. economy is losing momentum.
“The jobs data is a reminder that the U.K. economy is slowing,” said Howard Archer, chief economist at EY Items Club. “The economy is facing several headwinds, including rising inflation, high-interest rates and a cost of living crisis.”
The pound will likely remain under pressure in the coming months as the U.K. economy continues to slow.
Here are some of the factors that may have contributed to the weakness of the pound:
Rising inflation: In the U.K., further increases are expected in the coming months, and inflation is currently at a 40-year high of 9%. This puts pressure on household budgets and can slow down consumer spending.
Higher interest rates: the Bank of England is expected to raise interest rates again in June to control inflation. This could make the U.K. a less attractive place to invest and could also weigh on sterling.
Expenses of Living: The cost of living in the U.K. is rising fast due to high energy and food prices. This is putting pressure on households and can cause a slowdown in economic growth.
The pound will likely remain under pressure in the coming months as the U.K. economy continues to slow.
The dollar was near a five-week high on Tuesday, supported by expectations that the U.S. to combat inflation, the Federal Reserve will continue to raise interest rates aggressively.
Against a basket of six that tracks the greenback’s major currencies, the dollar index was up 0.1% at 102.57, shy of Monday’s five-week high of 102.75.
The euro fell 0.1% to $1.0892, while the Japanese yen declined 0.2% to $135.95.
The dollar’s strength came as investors bet the Fed would raise interest rates aggressively to curb inflation. The Fed is expected to hike by 50 basis points at its meeting next week and another 50 basis points in July.
The prospect of more aggressive rate hikes from the Fed supports the dollar, making U.S. assets more attractive to investors. The dollar also benefits from safe-haven demand as investors seek less risky investments amid growing uncertainty about the global economy.
The dollar will likely stay strong soon as investors continue to bet on more aggressive rate hikes from the Fed. However, the dollar’s strength may be limited if the U.S. economy keeps pace.
