Today’s Pound to US Dollar (GBP/USD) Exchange Rate News: Could US Non-Farm Payroll Data Knock Federal Reserve Bets?

Pound to US Dollar (GBP/USD) Exchange Rate Bounces from Lows despite Federal Reserve’s Hawkish Tone

Despite an optimistic tone from the Federal Reserve following Wednesday’s policy decision meeting, this morning the Pound to US Dollar (GBP/USD) exchange rate has rebounded slightly from its worst levels.

Nevertheless, GBP/USD may still be in for its third consecutive week of falls. The currency pairing opened this week at the interbank level of 1.37 and on Wednesday evening hit its worst level since early January, when it was 1.35.

Still, while Sterling’s (GBP) gains were limited by an underwhelming UK services report, GBP/USD saw a modest recovery this morning and trended near the interbank level of 1.36 at the time of writing.

While the Federal Reserve took an optimistic tone in its May policy decision and even indicated that US inflation was strengthening, the US Dollar (USD) slipped from its best levels in early Thursday trade.

Some investors sold the US currency from its best levels in profit taking, while others became jittery as key trade talks between the US and China finally began.

Pound (GBP) Exchange Rates Gains Limited as UK Services Report Disappoints

Investors have had little reason to buy into the Pound (GBP) this week.

Following disappointing UK inflation and growth data from Q1 over the last month, market bets for a Bank of England (BoE) interest rate hike in May have faded, and so far Q2 isn’t looking to be much better.

This week saw the publication of Britain’s April PMIs from Markit. While the construction PMI beat expectations, data from the sector is relatively low-influence.

Analysts were more concerned as Britain’s manufacturing and services PMIs both fell short of forecasts, indicating the economy was still performing below expectations.

According to Samuel Tombs, chief UK economist from Pantheon Macroeconomics:

‘The services PMI was never going to be pivotal for the [Bank of England] MPC’s interest rate decision this month, given that both GDP and inflation already had surprised greatly to the downside.

… Following today’s data, nobody can have strong conviction that the economy’s first quarter slowdown will be just a blip.’

As a result, the Pound was unable to mount a solid recovery against the US Dollar (USD).

US Dollar (USD) Exchange Rates Weighed by Trade Jitters despite Hawkish Fed

The Federal Reserve left monetary policy frozen during its May policy decision on Wednesday as expected – but also acknowledged that US inflationary pressures were gaining.

Notably, the bank also stated that inflation was nearing its 2% targets. The bank’s statement was altered to say:

‘overall inflation and inflation for items other than food and energy have moved close to 2%.’

Markets are betting that the Federal Reserve will hike US interest rates again in its June policy decision, and the Fed’s hawkishness on inflation has led to bets that the Fed could hike rates four times throughout 2018 rather than three.

However, despite the Fed’s optimistic tone the US Dollar (USD) was unable to hold its best levels. This was partially due to renewed trade jitters, as anticipated trade talks between the US and China formally began.

Markets are anxious that if talks do not go well a trade war between the nations could be sparked. Investors were particularly anxious as talks begun amid news that China had stopped buying US soybeans.

Pound to US Dollar (GBP/USD) Forecast: US Non-Farm Payroll Report in Focus

The Pound (GBP) was able to rebound from its worst levels on Thursday morning, but its gains are likely to be limited and no other major UK data is due for publication until next week.

With the UK growth outlook underwhelming, Sterling investors may instead look to Brexit developments for reasons to move on the British currency.

Failing that though, the Pound to US Dollar (GBP/USD) exchange rate forecast is likely to be driven by US trade developments and of course Friday’s US Non-Farm Payroll report.

Even though the Federal Reserve has been hawkish, Fed interest rate hike bets could still fall if US job stats come in well short of expectations.

The US unemployment rate is forecast to have improved from 4.1% to 4% and Non-Farm Payrolls are expected to have accelerated to around 192k.

If these stats or US wage growth figures disappoint investors, Fed rate hike bets could weaken and the Pound to US Dollar (GBP/USD) exchange rate could see a stronger recovery.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard