Pound US Dollar Exchange Rate Rallies as UK Wage Growth Beats Expectations, Is a January Rate Cut from the BoE Still Inevitable?

GBP/USD Exchange Rate Strengthens on UK Employment Figures

The Pound Sterling to US Dollar (GBP/USD) exchange rate is ticking higher this morning as GBP investors welcomed the UK’s latest employment report.

At the time of writing the GBP/USD exchange rate is trading at around $1.3044, up roughly 0.3% from this morning’s opening levels.

Pound (GBP) Buoyed as Upbeat Wage Growth Dampens BoE Rate Expectations

The Pound (GBP) is rallying this morning in response to the UK’s latest labour statistics.

According to data published by the Office for National Statistics (ONS) the UK unemployment rate held at a near 45-year low in November.

However it was the accompanying earnings figures which were the focus for GBP investors, with Sterling sentiment improving after wage growth came in above expectations, holding at 3.2%, against forecasts it would slow to 3.1%.

The robust wage growth figures came as a welcome surprise to GBP investors, particularly following a run of poor data releases last week.

Most importantly for GBP investors however is how this could impact the Bank of England’s (BoE) rate decision next week.

The figures appear to have dented expectations for a rate cut this month, with CME’s BoE Watch Tool indicating the odds of a January rate cut fell from 72% to 62% immediately following the employment report.

US Dollar (USD) Muted as Trump Impeachment Trial to Get Underway

At the same time, the US Dollar (USD) is mostly rangebound this morning, as investors shy away from the currency ahead of the start of US President Donald Trump’s impeachment trial.

Trump is only the third US President in history to face an impeachment trial, with proceedings set to begin at 18:00 GMT.

Trump is facing two charges, one for withholding military aid to Ukraine in exchange for dirt on one of his political rivals whilst the other is for obstructing Congress for refusing to allow White House staff from testifying at last year’s impeachment hearings.

While the impeachment trial is not expected to remove Trump from office given the Republican’s control of the Senate, the process is still likely to give USD investors some pause for thought.

GBP/USD Exchange Rate Forecast: UK PMI Figures also in Focus This Week

Looking ahead, the other major catalyst in the Pound to US Dollar (GBP/USD) exchange rate this week looks to be the publication of the UK’s latest PMI figures on Friday.

The PMI figures will be the last major UK data release ahead of the BoE’s rate decision next week and may have some bearing on whether the bank decides to pursue an immediate rate cut.

This could see Sterling edge higher at the end of the week if an improvement in private sector growth is seen as reducing the odds for a rate cut.

In the meantime, the US Dollar may find some modest support in the mid-week if US existing home sales are shown to have rebounded in line with expectations in December.

Matthew Andrews

Contact Matthew Andrews