Global economic growth woes cause the dollar to reclaim one-week highs

According to official data released on Tuesday, the hot labour market in Britain has cooled as companies are turning more cautious about hiring. Workers have also been hit with record-low adjusted wages due to rising inflation.

UK labour market shows signs of weakening

In line with expectations, the unemployment rate remained close to a half-century low at 3.8%. However, in the April-June period, the number of people employed increased by 160,000, a relatively lower increase in comparison with the 256,000 expected in the Reuters poll. According to the Office for National Statistics, vacancies fell for the first time since mid-2020.

Despite an increase of 4.7% in wages, excluding bonuses, they dropped by 4.1% when adjusted for inflation, the sharpest drop recorded since records began. The Bank of England closely monitors the labour market for signs of long-term inflation. Earlier this month, it raised borrowing costs to their highest level since 1995, saying it would act forcefully if the pressure continued.

UK inflation on Wednesday

A report to be released on Wednesday is expected to show that Britain's consumer price index rose by 9.8% in the year to July, according to economists polled by Reuters. The Bank of England expects the CPI to hit 13.3% in October, its highest level since 1980.

Hot inflation figures and a cooling job market have put the UK economy between rocks, leaving the BoE with no choice but to combat the rising inflation at the cost of slowing down the economy. GBP/USD has been struggling with the crucial support level at 1.20 following a recovery from the 26-month lows in recent weeks. If the pair drops further, the 1.19200 barrier will come into focus to halt the fall.

US dollar dominates the markets

Across the FX market, safe-haven dollars hit a one-week high on Tuesday after weak global economic data, especially in China, stoked recession concerns and weighed on risk-friendly currencies like the Australian dollar. 

After sliding from a two-decade high at 109.29 in mid-July, the dollar index fell to 104.63 last week for the first time since the end of June, as markets pared bets on continued aggressive Fed tightening. Nevertheless, several Fed policymakers have recently discussed the need for continued rate hikes. In this situation, it is no surprise that the dollar dominates the markets, putting more pressure on gold. As the precious metal has already broken below its three-week uptrend line on the four-hour chart, more losses could be on the way to the 1770 mark.