Pound US Dollar Exchange Rate Muted after Relinquishing Gains
(Updated 16:55 12-10-21) The Pound US Dollar exchange rate closed Tuesday’s European session back near the day’s opening levels, giving up gains made earlier in the day to trade slightly above $1.36.
Market mood soured during the afternoon, lifting demand for the safe-haven ‘Greenback’.
Meanwhile, the US JOLTs job openings data revealed vacancies in the US dropped since December 2020, with 10.4m unfilled positions in August, down from record highs of near 11.1m in July.
As job vacancies remain high, some analysts fear labour market problems could affect economic growth.
Pound US Dollar (GBP/USD) Exchange Rate Steady as UK Unemployment Falls
The Pound US Dollar (GBP/USD) exchange rate is edging higher so far today after giving up gains made during Monday’s European session.
Falling UK unemployment has supported GBP/USD this morning, while Bank of England (BoE) interest rate hike expectations also underpin the pairing.
After hitting a two-week high yesterday, the Pound is trading at 1.3613 against the US Dollar at the time of writing.
Pound (GBP) Bolstered by UK Employment Data
A drop in the UK unemployment rate for August from 4.6% to 4.5% bolstered support for the Pound on Tuesday morning.
Employment data revealed payroll numbers increased by 207,000 to a record high 29.2m at pre-pandemic levels. Vacancies are also at a record high, with 1.2m across the UK.
Office for National Statistics (ONS) Director of Economic Statistics Darren Morgan commented:
“The jobs market has continued to recover from the effects of the coronavirus, with the number of employees on payroll in September now well exceeding pre-pandemic levels”
At the same time, the data revealed that wage growth slowed, from 8.3% to 7.2%.
However, the Office for National Statistics (ONS) warned that wage growth figures could be misleading, explaining:
“Annual growth in average employee pay is being affected by temporary factors that have inflated the increase in the headline growth rate: base effects where the latest months are now compared with low base periods when earnings were first affected by the pandemic, and compositional effects where there has been a fall in the number and proportion of lower-paid employee jobs, therefore increasing average earnings.”
Meanwhile, GBP exchange rates continue receiving support from expectations that the BoE plans to raise interest rates sooner than previously thought following comments from BoE policymakers.
Sterling gains are limited, however, by the looming energy crisis in the UK that threatens heavy industry shutdowns and renewed Brexit tensions between the UK and EU over the Northern Ireland Protocol.
US Dollar (USD) Lacks Direction amid Cautious Market Mood
The US Dollar has lacked support so far through Tuesday’s session despite a cautious market mood.
Against the backdrop of concerns over weakening global economic growth, soaring energy prices, inflation jitters, supply chain problems, and the possibility of central banks beginning to raise interest rates, the US Dollar has so far failed to capitalise on safe-haven demand.
In the absence of notable US data releases at the start of the week following Columbus Day, the ‘Greenback’ is lacking direction after last Friday’s lower-than-expected non farm payrolls figures.
As September’s data missed forecast at 194,000 jobs added instead of the 500,000 expected, some analysts questioned whether the data would lead to the Federal Reserve altering its stance on when to tighten monetary policy.
The Fed was widely expected to announce tapering of bond-buying purchases at its November policy meeting and signal when it would likely raise interest rates.
However, the dire payrolls data has caused speculation that this may be less likely, although the US Dollar recovered post-payroll losses due to rising US Treasury yields on Friday, suggesting most investors expect tapering.
Pound US Dollar Forecast: BoE and Fed to Drive Volatility in GBP/USD
While speculation about the BoE and Fed tightening monetary policy and raising interest rates amid global inflation jitters will likely be one of the key drivers in GBP/USD, high-impact data releases could also cause volatility.
UK GDP data released tomorrow may lend support to Sterling, with 0.5% growth expected in August, up on July’s 0.1%.
However, slowing 0.2% industrial production in August could limit gains, down on 1.2% the month before.
More speeches from BoE policymakers through the week will provide more insight into the likelihood of the BoE hiking interest rates.
Following rate hike hints from Governor Andrew Bailey, Chief Economist Huw Pill, and Monetary Policy Committee (MPC) member Michael Saunders, speeches from other MPC members will likely drive GBP movement.
Meanwhile, JOLTs job opening data for August published this afternoon will likely stoke some volatility in USD.
With the number of job openings forecast to remain near record highs, the data may suggest labour market problems in the US.
US inflation released tomorrow may add to the Federal Reserve’s case for tightening monetary policy, with September’s rate expected to remain at 5.3%, the same as the month previously.
The publication of the Federal Open Market Committee’s (FOMC) meeting minutes may also shed more light on the Fed’s plan to begin tapering its bond-buying programme.