GBP/USD Exchange Rate Lifts as US Jobs Data Misses Forecasts
(Updated 16:35, 20/01/2022) The Pound Euro (GBP/EUR) exchange rate rose further this afternoon despite growing concerns from UK politicians and economists regarding the burgeoning cost-of-living crisis.
Dr Jackie Mulligan, founder of the local shopping platform, Shopappy, confirmed that high inflation is also putting pressure upon businesses:
‘The move to Plan B holed many businesses under the waterline, just when they needed a festive lift. Around the country towns became ghost towns in December and 2022 has started on an equally sombre note.’
Nevertheless, widespread confidence in a February rate hike from the Bank of England (BoE) continued to temper downside.
Meanwhile, jobs data from the US surprised to the downside, as both initial and overall jobless claims rose over Christmas and into January.
Initial claims increased to 286K in the week to January 15, while the 4-week average of benefit claimants rose to 231K: analysts blame a surge in Covid cases and record quit rates for the disappointing data.
Original article continues below:
Pound US Dollar Exchange Rate Climbs despite Lack of UK Data
The Pound US Dollar (GBP/USD) exchange rate is trending up this morning in spite of a lack of UK data, as the US Dollar (USD) remains subdued on wavering risk sentiment.
At the time of writing, GBP/USD is trading at $1.3629, up slightly from today’s opening levels.
US Dollar (USD) Sinks Ahead of Jobs Data
The US Dollar is falling against the majority of its peers today as an uncertain market mood and the prospect of mixed jobs data later today weigh upon the currency.
While initial jobless claims are expected to have decreased in the week ending 15 January, overall claims for the 4 weeks to 15 January look to have increased, potentially exerting USD downside.
Lending some support, the benchmark 10-year Treasury bond yield is holding steady this morning, sponsored by optimism over a March rate hike from the Federal Reserve.
Economists polled by Reuters concur that the central bank will likely tighten monetary policy much faster than expected last month: a strong minority – 40 of 86 analysts – expect the Fed to hike interest at least four times this year.
Meanwhile, nearly three quarters of survey respondents predict that the bank will start reducing the size of its nearly $9 trillion balance sheet by the end of the third quarter.
According to Robert Kavcic, senior economist at BMO Capital Markets:
‘It’s almost as if, all at once, the Fed has realized that policy has been left too accommodative, for too long. To their credit, if they’ve realized a mistake, they’re going to fix it – and fix it fast.’
Pound (GBP) Firms on Upbeat Trading Conditions
The Pound (GBP) is rising this morning, still enjoying tailwinds in the aftermath of yesterday’s inflation release.
Markets were initially bearish in response to the data, as the UK’s CPI rose to 5.4% rather than the 5.2% expected. Higher inflation usually bolsters currencies, but as the Bank of England (BoE) is already expected to hike rates in February, upside was limited.
Some economists even speculated that an increasing disparity between living costs and wage growth could lead BoE officials to defer a rate hike: ING markets economist James Smith affirmed ‘we think wage growth will assume higher priority in deciding how far to increase Bank rate this year.’
BoE Governor Andrew Bailey also encouraged investors not to get too attached to the idea of a rate hike, citing the argument that ‘higher inflation could restrain demand in the economy and bring inflation back down.’
However, his dovish tone was tempered by assertions that ‘we can and will do everything we can to control inflation’ and ‘I would not want to suggest that the Bank of England will not take action on interest rates if necessary.’
Pound US Dollar Exchange Rate Forecast: US Data to Drive Movement?
Looking ahead, this afternoon’s US jobs data is likely to be the main market-mover, inspiring potential volatility in GBP/USD trading if it prints mixed as expected.
Meanwhile, a lack of GBP data leaves Sterling to trade on market mood and other external factors, including UK politics and coronavirus developments. The news that Plan B measures will be scrapped in stages over the next couple of months appears to have lent upside and may continue to do so.