US Job Growth Accelerates – Pound US Dollar (GBP/USD) Exchange Rate Continues to Climb

US Labour Market Continues to Tighten – Pound US Dollar (GBP/USD) Exchange Rate Unperturbed

UPDATE 14:00 BST: The US labour market figures are in, with US job growth accelerating in May and the unemployment rate hitting a surprising 18-year low of 3.8%.

According to the US Labour Department, nonfarm payrolls jumped by 223,000 last month, smashing the forecast of a 190k rise and the previous period’s rise of 159k.

Combined, this raft of upbeat results bodes well for higher levels of inflation in the US, and has now cemented expectations that the US Federal Reserve will move to raise interest rates in June.

Surprisingly, the Pound US Dollar (GBP/USD) exchange rate has proven rather resilient, continuing to edge higher into the early afternoon.

Pound Sterling US Dollar (GBP/USD) Exchange Rate Pushes Higher on Upsurge in UK Manufacturing Activity

The Pound Sterling US Dollar (GBP/USD) exchange rate climbed on Friday morning, supported by a better-than-expected UK manufacturing print and hopes for a Bank of England (BoE) rate rise sometime this summer.

IHS Markit’s latest UK manufacturing PMI printed at 54.4, up from the previous period’s 53.9 and the market forecast of 53.5.

This acceleration was predominantly due to an upsurge in output growth, though many analysts also highlighted that the slowdown in new order inflows and weaker than expected sales could prove problematic in the long run.

‘A slowdown in new order inflows meant the expansion in product was achieved only by firms working through their backlogs of work’, said Markit’s Robert Dobson, highlighting these concerns.

‘These prices and supply headwinds, combined with a further slowdown in new order growth could jeopardise any further expansion of the manufacturing sector’.

This outlook marred the results to a certain extent, though investors remain somewhat hopeful that further signs of growth will push the BoE towards a rate rise in August.

US Labour Market Statistics Imminent – What can we expect for the US Dollar (USD) Exchange Rates?

Investors are currently preparing for the imminent release of the US labour market figures for May, which will include the latest in payroll numbers, the unemployment rate, the wage growth figures and the ISM manufacturing results.

Analysts currently expect most of these releases to be positive, with hourly earnings forecast to climb from 2.6% to 2.7% year-on-year, and a sizeable 190k new payrolls expected to have been added last month.

Beyond this, the US unemployment rate is expected to hold at historic lows of 3.9%.

Combined, these results (should they occur) could push the US Federal Reserve even closer to a possible four rate hikes this year, rather than three, with investors also expecting one to occur as early as June.

This outlook did little to prevent GBP/USD from climbing, however, with the US Dollar struggling in light of market anxieties over the renewed steel and aluminium tariff measures against the EU, Canada and Mexico.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: Will the BoE Raise Interest Rates this Summer?

The Pound US Dollar (GBP/USD) exchange rate could find greater room to rally this summer if UK growth continues to recover from the disappointing performance in Q1.

Whilst today’s UK manufacturing print was somewhat sullied, some analysts, like ING Bank Economist James Smith, still believe that the BoE will move to raise rates in the coming months.

Mr Smith stated:

‘…our feeling from recent Bank of England commentary is that the committee has a preference to hike rates sooner rather than later if the data allows, in part to combat the risk of rising wage growth and underlying inflation’.

This outlook was echoed earlier in the week, with some forecasters putting the chances of a rate rise in August at 50:50.

It will, however, be entirely dependent on data continuing to improve.

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Contact John Cameron