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Pound sterling is set to extend its decline against the dollar.
A risk-off mood in global markets and a soft UK labour market print should keep the pound to dollar exchange rate (GBP/USD) under pressure.
Sterling was sold widely after the UK reported a rise in the unemployment rate from 4.7% to 4.8%, with payrolls falling 10K in the month to September. Average weekly earnings excluding bonuses rose by 4.7% three-months year-over-year in August, down from 4.8% in July and below the consensus expectation of 4.8%.
These data raise the odds of a quicker pace to the Bank of England's interest rate cutting schedule, as the Bank will be keen to shore up the economy via cheaper lending rates.
"Markets will rightly price a greater chance of an MPC rate cut by year-end after these data as rate setters have placed a lot of focus on wage growth and inflation to justify another cut," says Rob Wood, Chief UK Economist at Pantheon Macroeconomics.
With the prospect of more rate cuts ahead, UK bond yields are falling and taking the pound lower alongside.
At the same time, the dollar is higher against its main rivals amidst a risk-off sentiment in global markets, with analysts blaming the jockeying by China and the U.S. ahead of a new trade settlement.
China slapped restrictions on five U.S. subsidiaries of South Korea's Hanwha Ocean, one of the world's biggest shipbuilders.
Expect more tit-for-tat retaliation, which should keep investors on edge, which tends to benefit the dollar owing to its 'safe haven' credentials.
"The USD has bounced 3% after hitting a 3-1/2-year low in September thanks to the continued government shutdown, and renewed political and policy uncertainty in France and Japan," adds a note from Standard Chartered, pointing to additional drivers of USD outperformance.
GBP/USD now has its sights on July lows, say Alex Kuptsikevich, chief market analyst at FxPro.
"GBPUSD is heading towards 1.3140, the 61.8% area of growth from the lows at the beginning of the year to the peaks at the start of July. This level stopped the pair's correction in July, maintaining its growth pattern. Just above, at 1.3180, is the 200-day moving average," he explains.
Kuptsikevich says consolidation below these support levels would be two confirming signals of a reversal in the dollar trend.
If so, then a much deeper decline in GBP/USD awaits over the coming months.
"It is also important for us that the dollar has turned to growth despite weak data. Working against fundamental news is a very important indicator of the internal strength and confidence of the bulls," says Kuptsikevich.