GBP/USD Exchange Rate Stumbles as Employment Figures Miss Expectations
The Pound (GBP) fell against the US Dollar (USD) this morning before recovering briefly, as UK employment data missed targets. While figures dropped substantially from last month, the number of people claiming employment benefits missed predictions of a 120K reduction.
At the time of writing, the Pound trades at US$1.3871, virtually unchanged from today’s opening levels.
Pound (GBP) Slides on UK Employment Figures
The Pound (GBP) dropped against the US Dollar this morning as the UK claimant count, employment change and unemployment rate all missed expectations.
While payroll data showed an impressive increase on the previous month alongside total hours worked, both remain below pre-covid levels. The Director of Economic Statistics at the Office for National Statistics encourages a cautious interpretation of the data:
While average weekly earnings rose beyond expectations in May, economists have cautioned that the data has been affected by temporary factors such as a fall in the number and proportion of lower-paid employee jobs. Deputy National Statistician Jonathan Athow explains:
‘The analogy I like to use is height. If the shortest person in a room leaves, the average height of those remaining will rise. No-one has got taller, but the composition of the people in the room has changed.’
Bearish trading sentiment has been exacerbated by the Bank of England’s Credit Conditions Survey this morning, which saw policymakers vote to leave the bank’s bond-buying scheme unchanged.
US Dollar (USD) Fluctuates on Dovish Fed Statement
The US Dollar (USD) saw initial gains against the Pound (GBP) this morning despite a dovish message from Federal Reserve Chairman Jerome Powell. Powell said that ‘substantial further progress’ in the economy is still ‘a ways off’, quashing hopes of imminent bond tapering.
The ‘Greenback’ looks to fluctuate further this morning as the Fed message weighs on the currency, compromising market sentiment.
Powell balanced out the cautious forward guidance with reassurance that ‘recent price hikes are associated with the country’s post-pandemic reopening’; not everyone is so certain though.
Saxo Bank’s Head of FX Strategy, John Hardy observes:
‘Everybody is just really uncertain on the transitory inflation narrative. It feels like we need to get three more months of data before we can really get a grip on this market.’
The Fed Chairman is due to speak again in the second half of today’s session and may subsequently paint a clearer picture regarding economic policy, as he’ll have a chance to respond to US weekly jobless claims.
GBP/USD Forecast: Cable to Trade Sideways on Mixed Data?
Looking forwards, a series of US data releases this afternoon may drive forwards movement in the Pound US Dollar exchange rate. Initial jobless claims are predicted to equal 360K in July – a marginal decrease on last month’s figure which, if expectations are realised, could signal labour market recovery.
Industrial production, meanwhile, is forecast to rise, although not as rapidly as last month. Any data that demonstrates growth in the US economy is likely to elevate the US Dollar against the Pound, although some analysts foresee an extension of the pairing’s rangebound theme.