UPDATE: Further support for the GBP/USD exchange rate has come on the back of the latest comments from chief EU negotiator Michel Barnier, who noted that ‘the no-deal scenario is not our scenario’.
This fuelled market hopes that the two sides are moving towards an agreement, in spite of outstanding issues, giving Pound Sterling (GBP) a boost heading into the weekend.
Rising US Wages Fail to Dampen Pound US Dollar (GBP/USD) Exchange Rate Momentum
UPDATE: A surprise uptick in US average hourly earnings was not enough to knock the Pound Sterling to US Dollar (GBP/USD) off its uptrend on Friday afternoon.
Although earnings accelerated 2.9% on the year in August the US Dollar (USD) struggled to capitalise on this improvement.
As the US unemployment rate failed to ease from 3.9% to 3.8% as forecast, this limited the upside potential of USD exchange rates, even as the headline change in non-farm payrolls figure saw an improvement.
Higher UK Inflation Expectations Limit Pound Sterling US Dollar (GBP/USD) Exchange Rate Downside
An unexpected uptick in the latest UK consumer inflation expectations survey limited the downside potential of the Pound Sterling to US Dollar (GBP/USD) exchange rate on Friday morning.
While consumer expectations point towards inflation of 3% this proved not to be enough to drive Pound Sterling (GBP) markedly higher ahead of the weekend.
As a significant sense of uncertainty continues to hang over the outcome of Brexit negotiations investors are inclined to maintain a wary view of the Pound.
Until signs of tangible progress towards a deal emerge the upside potential of GBP exchange rates looks set to remain limited.
Falling US Unemployment Rate to Weigh on GBP/USD Exchange Rate
Meanwhile, mounting anticipation ahead of August’s US non-farm payrolls report offered additional support to the Pound Sterling to US Dollar (GBP/USD) exchange rate.
Although investors anticipate another solid jobs report the mood towards the US Dollar (USD) still softened as markets braced for the possibility of a downside surprise.
Nevertheless, if the unemployment rate is confirmed to have dipped from 3.9% to 3.8% in August USD exchange rates could rally sharply in the wake of the report.
Evidence of the continued tightening of the US labour market would give Federal Reserve policymakers greater cause for confidence, improving the likelihood of an imminent interest rate hike.
As long as global trade tensions remain elevated this is also likely to support a stronger US Dollar.
GBP/USD Exchange Rate Looks for Support on UK Growth Data
A greater rallying point could be in store for the Pound Sterling to US Dollar (GBP/USD) exchange rate next week, though, if the latest UK gross domestic product data proves positive.
Forecasts point towards a solid uptick in the monthly GDP reading for August, with the economy expected to accelerate to a bullish 0.7%.
If growth strengthens as forecast this should give the Pound a strong boost against its rivals, improving confidence in the outlook of the domestic economy.
Even so, this is unlikely to alter the stance of policymakers at the Bank of England’s (BoE) September meeting.
Continued signs of caution from the BoE and Brexit-based uncertainty are likely to limit the potential for any major GBP/USD exchange rate rebound.
Weaker US Inflation to Offer Pound Sterling US Dollar (GBP/USD) Exchange Rate Boost
August’s US consumer price index data may give an additional boost to the Pound Sterling to US Dollar (GBP/USD) exchange rate.
With the headline inflation rate expected to ease from 2.9% to 2.7% on the year this could take some of the wind out of the US Dollar’s sails.
Although even a weaker showing here is unlikely to alter the prospect of the Fed raising interest rates at its next policy meeting this could still dent USD exchange rates.
However, if the Trump administration continues to push ahead with further protectionist trade measures a lingering sense of market risk aversion is likely to fuel continued demand for the US Dollar.
Any sign of weakening US data could still offer a temporary boost to the Pound Sterling to US Dollar (GBP/USD) exchange rate in the near term, though.