Pound US Dollar Exchange Rate Steady, US Labour Market has ‘Uneven Path Forward’

GBP/USD Exchange Rate Rangebound as US Jobs Data Falls Below Consensus

(Updated: 16:04 04/08/2021) The Pound US Dollar (GBP/USD) exchange rate held steady later this afternoon following the release of the latest US ADP jobs survey for July, which posted well below forecasts, adding just 330,000 jobs last month.

Nela Richardson, chief economist at ADP, commented:

‘The labor market recovery still has legs, but it’s likely to be an uneven path forward.’

As a result, US Dollar (USD) traders have become more concerned about the health of the US economy, which is facing increasing degrees of uncertainty due to the uncertain direction of the Delta coronavirus variant.

The Pound struggled to rise against the ‘Greenback’, however, as the latest UK service data revealed that the ‘pingdemic’ had held back the nation’s economic growth last month.

GBP/USD Exchange Rate Rises, UK Markets Await Bank of England’s Monetary Policy Statement

The Pound US Dollar (GBP/USD) exchange rate rose today ahead of Thursday’s interest rate decision from the Bank of England (BoE). The pairing is currently trading around $1.39.

Although the central bank is expected to hold the rate at 0.1%, July’s lifting of lockdown measures are expected to inspire a more hawkish monetary policy statement.

ING senior rates strategist Antione Bouvet and markets economist James Smith on the UK’s rising levels on inflation:

‘Reopening-related price spikes in various consumer services are combining with lingering supply chain disruption and energy base effects to drive a faster inflation rate than the Bank had pencilled in back in May.

‘We now expect CPI to peak around 3.5% later this year, compared to 2.5% as the Bank was forecasting back in May.’

BNP Paribas chief European economist Paul Hollingsworth predicted a wait-and-see approach from the BoE, saying:

‘[W]ith insufficient evidence to conclude that the pick-up in inflation will be persistent, and rising Covid-19 cases likely to instil some caution, we think only one MPC member will vote for tighter policy now – via scaled-back QE purchases.’

The GBP/USD exchange has instead benefited from hopes that falling daily Covid-19 infections will help the nation’s economic recovery in the months ahead.

However, Pound investors are also remaining cautious, with fears that the UK could see rising case numbers going into autumn and winter. This could see the imposition of lockdown measures, which would limit the economy later this year.

US Dollar (USD) Exchange Rate Falls Despite Risk-On Market Mood

The US Dollar (USD) fell today because of a return of risk-on mood as the outlook for the global economy improves. Yesterday saw the release of the latest US factory orders data, which beat forecasts and saw a return of confidence in the world’s largest economy.

Today also saw reports that Chinese services activity had accelerated, despite lingering concerns about the spread of the Delta variant of the coronavirus spreading throughout Asia-Pacific.

With China being the world’s second largest economy, this has buoyed optimism in a global economic recovery from the coronavirus pandemic.

As a result, this has limited the appeal of the safe-haven Greenback as investors now seek out riskier assets such as the Australian Dollar.

Michael Hewson, chief market analysts at CMC Markets UK, commented on the rising concerns about the spread of coronavirus across Asia:

‘Concerns that rising infection rates across Asia, and in China especially, appear to be causing anxiety that the rebound story in that part of the world is about to become the weakest link in the global recovery story. Not only are we hearing about more cases in China, but we are also getting an acceleration of cases across Indonesia and Thailand, as the virus hunts out the parts of the global economy with low vaccination rates.’

Could rising concerns over the Delta variant of Covid-19 see demand for the safe-haven ‘Greenback’ pick-up later in today’s session?

GBP/USD Exchange Rate Forecast: Bank of England Interest Rate Statement in Focus

US Dollar (USD) investors will be awaiting tomorrow’s release of the latest US initial jobless claims for the week ending July 30.

Any improvement in the US labour market would benefit the USD/GBP exchange rate.

However, we could see the Pound US Dollar exchange rate head higher tomorrow if the Bank of England is notably more hawkish about the outlook for the British economy.

If the BoE strikes a more cautious tone, however, with concerns for autumn and winter – when Covid-19 infections are expected to soar – then we would see the Pound suffer.

David Moore

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