Pound US Dollar (GBP/USD) Exchange Rate Slumps as US Job Recovery on ‘Shaky Ground’

Pound Sterling US Dollar (GBP/USD) Exchange Rate Tumbles as US Employment Growth Falters

UPDATE: The Pound Sterling US Dollar (GBP/USD) exchange rate plummeted by -0.8% on Friday afternoon. This left the pairing trading at around $1.3037.

Data revealed that US employment growth stalled considerably last month due to the resurgence of new coronavirus cases.

This offered the clearest evidence yet that the economy’s recovery from the recession had stalled. This sent traders flocking to the safe-haven ‘Greenback’.

Non-farm payrolls increased by 1.763 million in July after a record 4.791 million in June while the country’s unemployment rate fell to 10.2%.

Chris Rupkey, chief economist at MUFG in New York noted:

‘The jobs recovery is on very shaky ground and without seat belts for the unemployed provided by additional fiscal stimulus the economy could be in for a very bumpy ride.

‘There cannot be sustainable economic growth if the country has to carry on with the crushing weight of massive unemployment.’

Pound Sterling US Dollar (GBP/USD) Exchange Rate Slides as Trump Exacerbates US-China Tensions

The Pound Sterling US Dollar (GBP/USD) exchange rate suffered losses at the end of the week. This left the pairing trading -0.4% lower at around $1.3089.

The US Dollar was able to bounce back against the Pound on Friday after US-China relations continued to deteriorate further.

US President Donald Trump took steps to ban transactions with the Chinese owners of two popular mobile phone apps, TikTok and WeChat.

Trump issued an executive order banning transactions with ByteDance, the Chinese company that owns TikTok. The US president has said the app is a threat to national security.

The President’s executive order said:

‘The spread in the United States of mobile applications developed and owned by companies in the People’s Republic of China (China) continues to threaten the national security, foreign policy, and economy of the United States.’

Commenting on this, Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo noted:

‘Trump’s comments hit Hong Kong stocks hard and helped the Dollar rebound against the Euro and the Aussie.

‘The Dollar has been sold quite a lot, so it could bounce a little more, but there’s uncertainty about how payrolls will turn out.’

Pound (GBP) Slides as Sunak Acknowledges ‘Hardship Lies Ahead’

Sterling slumped against the Dollar just a day after the Bank of England’s (BoE) latest monetary policy meeting offered the currency support.

Thursday saw the BoE note that while the economy would not recover until the end of 2021, its short-term economic projections were less grim.

On Friday, Britain’s Finance Minister, Rishi Sunak said the forecasts represent an improvement on the old ones. But he acknowledged that the predictions show hardship lies ahead for the country.

Speaking to BBC News, Sunak said:

‘It’s an improvement from when they last did their forecast.

‘But […] they are right to say that hardship lies ahead.’

Meanwhile, the Chancellor also said it was wrong to keep people ‘trapped’ by false hope by extending the government’s furlough scheme.

When asked whether he would extend the scheme for sectors hit the hardest by the crisis he noted:

‘It’s wrong to keep people trapped in a situation and pretend that there is always a job that they can go back to.’

Pound US Dollar Outlook: US Non-Farm Payrolls in Focus

Looking ahead to this afternoon, the US Dollar (USD) could make some gains against the Pound (GBP) if risk appetite slumps.

If the latest non-farm payrolls data shows less jobs were added to the US economy than expected it will weigh on sentiment.

Added to this, if July’s US unemployment rate does not fall as much as forecast, it will send risk appetite lower.

Traders are expecting US jobs growth to slow significantly in July as coronavirus cases jumped. This will weigh on riskier assets such as GBP, and buoy the safe-haven Dollar.

Downbeat US employment data will provide markets with the clearest evidence yet that the recovery in world’s largest economy was faltering. This would weigh on risk appetite and send the Pound US Dollar (GBP/USD) exchange rate lower.

Millie Empson

Contact Millie Empson