Upbeat US Payrolls Prompt First Weekly Loss for GBP/USD Exchange Rate in 2018

GBP/USD Exchange Rate Tumbles as US Jobs Data Impresses

The Pound US Dollar (GBP/USD) exchange rate’s run of gains against the US Dollar was broken last week, with the pairing posting its first weekly loss in 2018.

While Sterling showed remarkable resilience for much of the week, the UK currency stumbled at the last hurdle as both of the UK’s Manufacturing and Construction PMIs came in lower than expected.

Meanwhile the latest Federal Reserve meeting left USD investors a little more upbeat on Wednesday as Janet Yellen stressed the need for interest rates to continue rising.

However the real nail in the coffin for GBP/USD last week was some impressive US data at the tail end of the week, with the main driver of the US Dollar’s gains being Friday’s upbeat payroll figures.

US Dollar (USD) Clings onto Gains on Inflation Hopes

The US Dollar continues to hold steady at the start of this week’s session as the currency remains buoyed by Friday’s employment figures, possibly marking the start of a recovery.

With the US economy adding more jobs than expected in January, confidence in the US economy is growing, particularly with regards to inflation which could be bolstered by rising employment.

Stubbornly low inflation remains a key barrier in the Fed’s plans to continue raising interest rates, so any hints that the price pressure may be strengthening, will be welcomed by investors.

However, analysts warn that it may be too early to think Friday’s USD rebound is anything more than a quick bounce, given the currency’s weakness so far this year.

Sterling (GBP) Muted as Services PMI Disappoints

The Pound is struggling a little this morning following the release of the UK’s latest Services PMI.

According to data published by IHS Markit the UK’s services index unexpectedly tumbled from 54.2 to 53 in January, disappointing those who had expected a modest rise.

The slowdown appeared to be largely driven by reduced demand for hotels and restaurants, with a dip in transport and communication sector activity also weighing on the index.

The services data also caps off a round of disappointing PMI figures as both the Manufacturing and Construction sectors suffered a slowdown at the start of the year.

Chris Williamson, Chief Business Economist at IHS Markit said:

‘The pace of UK economic growth slowed sharply at the start of the year as January saw a triple whammy of weaker PMI surveys.’

GBP/USD Forecast: BoE to Hint at Possible Rate Hike in 2018?

Looking to the week ahead movement in the GBP/USD exchange rate is likely to be driven by the tone of the Bank of England’s (BoE) latest policy meeting.

Sterling sentiment may go higher if the bank hints about the possibility of a rate hike later this year, with markets hopeful that robust growth last year will lead to a more hawkish outlook from policymakers.

Meanwhile the focus for USD investors this week is likely to be on the latest Services PMI later today, with the US Dollar likely to strengthen if activity rises as expected.

However any gains could be quickly eliminated if the US Trade Balance reveals that the domestic trade deficit expanded as forecast.

Hannah Wilson

Contact Hannah Wilson