GBP Under Pressure as UK Jobs Data Misses Forecasts While USD Weakens on Iran Oil Developments | FX Market Update

Key Highlight

• The US dollar weakened for the first time in nearly a week after reports suggested the US may temporarily ease Iranian oil sanctions, helping cool oil prices and easing pressure on global bond yields.
• Sterling initially found support from improved UK growth expectations and political reassurance around fiscal discipline, but weak UK labour market data quickly shifted sentiment.
• UK payrolls recorded their sharpest monthly decline since the pandemic, increasing concerns over slowing economic momentum and reducing expectations for further Bank of England tightening.
• Markets are now focused on upcoming UK inflation data, which could determine whether GBP stabilises or faces renewed downside pressure.
• Broader market sentiment remains tied to developments in the Middle East and the outlook for oil prices, which continue to influence both bond markets and currency flows.

Market Recap

The US dollar retreated on Monday after six consecutive sessions of gains, as reports of a possible temporary waiver on Iranian oil sanctions helped moderate crude prices and pull global yields away from recent highs. Softer yields reduced demand for the dollar and supported risk-sensitive currencies.

GBP strengthened through much of the session, helped by the IMF revising higher its UK growth outlook for 2026 and renewed confidence in the UK’s fiscal stance after political comments defending existing fiscal rules. However, the move lacked conviction as investors remained cautious over the UK’s broader political and economic backdrop.

That caution intensified following this morning’s UK employment report. Payroll numbers fell by 100,000 in April, significantly worse than forecasts and the steepest monthly decline since the pandemic period. Unemployment also edged higher to 5.0%, reinforcing signs that the labour market may be softening faster than expected.

Sterling briefly sold off after the release as traders reduced expectations for future Bank of England rate increases. While GBP later stabilised due to ongoing concerns around the reliability of payroll data, attention has now firmly shifted toward tomorrow’s UK inflation release, which is expected to provide clearer direction for monetary policy expectations.

Market Update

Overnight trading saw the US dollar regain modest ground as investors remained cautious over geopolitical developments in the Middle East. While President Trump refrained from immediate military action against Iran, markets are still reluctant to fully embrace risk until there is greater clarity around negotiations and regional stability.

In Canada, today’s inflation figures will be closely watched. Headline CPI is expected to rise sharply, which could reinforce the Bank of Canada’s cautious approach toward rate cuts and potentially support the Canadian dollar if inflation surprises to the upside.

Oil prices remain a central driver for global markets. Reports of a potential sanctions waiver temporarily eased supply concerns, but investors remain sceptical given the uncertain progress of negotiations. Any renewed escalation could quickly push oil higher again, supporting the US dollar while weighing on broader market sentiment.

For the UK, tomorrow’s CPI release is likely to be the key driver for GBP. A stronger inflation reading could revive expectations for tighter Bank of England policy and help sterling recover recent losses. Conversely, weaker inflation data would add to concerns created by soft employment figures and may leave GBP exposed to further downside pressure heading into the end of the week.

19th May 2026

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