Pound to US Dollar (GBP/USD) Exchange Rate Forecast: Signs of Trade War Jitters Impacting US Economy Could Boost Sterling

Pound to US Dollar Exchange Rate Advances on Signs of Weaker US Wage Growth

UPDATE: While June’s highly anticipated US Non-Farm Payroll report indicated that the US economy was still resilient despite rising trade war tensions, the latest wage growth data was concerning.

US wage growth fell short of forecasts, indicating that wage inflation was subdued. This could even make the Federal Reserve less hawkish.

As a result, the US Dollar (USD) weakened and the Pound to US Dollar (GBP/USD) exchange rate neared its weekly highs as the week drew to an end.

Dollar Traders Anticipate Non Farm Payrolls as First Shots are Fired in Trump’s Trade War – GBP/USD Unmoved

UPDATE: The Pound to US Dollar (GBP/USD) exchange rate edged higher on Friday morning due to concerns about how the US-China trade war will impact the US economy.

However, investors were also hesitant to move too much on the US Dollar (USD) ahead of the afternoon’s anticipated US Non-Farm Payroll report.

The latest US jobs data could have a strong influence on USD direction if it surprises investors, so there is still opportunity for GBP/USD to fall again later in the day.

Federal Reserve Caution and Trump’s Trade War News Facilitates Pound to US Dollar Exchange Rate Rise

Despite the broad based fears and uncertainties surrounding Brexit’s impact on UK businesses hitting headlines this week, the latest US news may have stolen the limelight and made it easier for GBP/USD to climb.

While Sterling has not been able to recover to last week’s opening levels against the US Dollar, the pair looks on track to sustain gains this week. GBP/USD was able to hold itself above the interbank level of $1.31 and head up to $1.32.

Rising Bank of England (BoE) interest rate hike bets were not enough to offset fresh market fears about how the Brexit process is impacting UK businesses.

The US Dollar (USD) however, was not able to capitalise on Pound (GBP) weakness, with USD being sold against many major rivals in Friday amid news that the US had fired the first shots in a trade war with China.

Pound (GBP) Exchange Rate Pressured by Businesses Brexit Concerns

In the first half of the week, Markit’s June UK PMI results beat forecasts in every major print and generally indicated that Britain’s economy had rebounded from the poor performance seen at the beginning of the year.

Despite some hawkish comments from Bank of England (BoE) Governor Mark Carney, the Pound’s strength was constrained later in the week.

This was partly due to another onslaught of warnings from UK businesses about the impact the Brexit process may have on them if the UK government does not hurry up and agree a ‘soft Brexit’ deal with the EU.

The latest businesses to express urgency about the slow pace of Brexit negotiations included carmakers within the Tata Motors Group, as well as JPMorgan and Airbus.

Most businesses indicated that UK jobs could be lost in a ‘no deal’ Brexit scenario.

JPMorgan confirmed this week that it was already planning to send some staff to continental Europe in the coming months in order to avoid the worst of the Brexit impact.

On Friday, Airbus said it was also taking steps and making preparations to avoid damage from the Brexit process.

US Dollar (USD) Sold off as Trade Tariffs Row Escalate into Trade War

On Friday morning global headlines were dominated by news that a trade war between the US and China had begun.

As Donald Trump’s $34bn of US tariffs on Chinese goods took effect, China has already retaliated with an almost equal set of tariffs on US goods. The months of trade tensions between the world’s two biggest economies were perceived as having finally escalated into a trade war.

This week, due to some mixed US data and cautious comments from the Federal Reserve’s latest meeting minutes, investors are anxious about how the US economy may be impacted by the trade war.

According to Andy Rothman, investment strategist from Matthews Asia:

‘The reciprocal tariffs on US$50bn of goods in both directions will have minimal impact in China,

The impact on the US political environment is, however, likely to be far greater,’

Amid uncertainties about how the US economy will be impacted by the trade war, the US Dollar’s appeal was weak.

Pound to US Dollar (GBP/USD) Forecast: UK Gross Domestic Product Reports to see Changes

Amid the focus on Brexit and US trade war fears this week, it’s widely expected that these factors will continue to drive the Pound to US Dollar (GBP/USD) exchange rate in the coming weeks.

Surprising developments in the Brexit process, like more warnings from businesses or perhaps signs of progress in talks, are more likely to drive Sterling (GBP) than upcoming data.

However, this week’s UK data is still likely to be influential.

Tuesday will see the publication of Britain’s May trade balance results – and the nation’s first monthly Gross Domestic Product (GDP) report.

Britain’s May GDP growth rate will be published on Tuesday. Previously, UK GDP was only reported quarterly.

The US Dollar, of course, will continue to be driven by developments in the US-China trade war.

Key US data is due for publication next week too, including June’s US inflation rate on Thursday and the latest Michigan consumer sentiment index next Friday. These may influence the direction of the Pound to US Dollar (GBP/USD) exchange rate.

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