Pound US Dollar Exchange Rate Extends Uptrend on Upbeat Market Mood
(Updated 16:45, 01/02/2022) The Pound (GBP) continued to climb against the US Dollar (USD) this afternoon as risk-on trading bolstered the ‘Greenback’s’ perceived-riskier peers.
Elsewhere, US manufacturing data printed marginally above expectations on both counts, but still fell on December’s figures: the IHS Markit PMI was revised higher to 55.5 but continued to point to the weakest rise in factory activity since October of 2020, while ISM data fell for a second straight month.
US JOLTs job openings surprised to the upside, remaining near record highs as employers continued to struggle with filling positions. The number of hires decreased to 6.3 million in December, with a 159,000 reduction in new professional and business services employees.
Meanwhile, the Pound found continued support despite a lack of additional data, although Sterling gains were capped by domestic politics. Prime Minister Boris Johnson faces increasing calls to resign after using a factually incorrect conspiracy theory to smear the Labour Party leader, Sir Keir Starmer.
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GBP/USD Exchange Rate Climbs ahead of US Jobs Data
The Pound US Dollar (GBP/USD) exchange rate is firming this morning as UK data beats expectations and a risk-on market mood subdues the safe-haven US Dollar (USD).
At the time of writing, GBP/USD is trading at $1.3499, up 0.4% from today’s opening levels.
Pound (GBP) Rises on Upbeat UK Data
The Pound (GBP) is firming against the majority of its peers this morning as the UK’s finalised manufacturing PMI revealed a smaller-than-expected drop in January’s activity. The index fell from 57.9 in December to 57.3, rather than 56.9 as forecast.
Also buoying GBP sentiment, consumer credit data from the Bank of England (BoE) shows an increase in borrowing. In December, consumers borrowed an extra £0.8bn, following a downwardly revised £1bn increase in November: the net increase was split between £0.4bn of additional borrowing on credit cards and £0.4bn in other forms of consumer credit.
Increased borrowing indicates increased spending – a sign of economic strength. However, downside may yet come if increased spending is a result of cost of living increases that threaten to tip more British families into poverty.
Research from StepChange Debt Charity shows the number of people finding it hard to keep up with bills and credit commitments has doubled since the start of the pandemic, as fifteen million Brits struggle with rising energy bills, food and clothing costs and soaring fuel prices at the pumps.
StepChange chief executive Phil Andrew commented: ‘The sharp rise in the number of people struggling to meet their financial commitments should raise alarm bells across Government, banks and regulators.’
US Dollar (USD) Subdued on Risk-On Trading
The US Dollar (USD) is trending down against its peers this morning as the risk-on rally continues. Corrective downside also weighs upon the ‘Greenback’, after the currency achieved new cycle tops last week.
Despite ongoing tensions between Russia and Ukraine, markets are upbeat amidst some signs of economic recovery. America’s Chicago PMI showed increased business activity in January; data from the BoE reveals increased consumer borrowing and German inflation has fallen so far this year – although energy prices remain painfully high.
Applying further USD downside, the Federal Reserve has moderated its tone somewhat, appearing less hawkish than last week as weak jobs data is forecast.
Kansas City Fed President Esther George said on Monday that aggressive action to reduce bond holdings may mitigate the need for successive interest rate hikes, warning that a ‘steep path’ for rate increases poses more financial risk.
Subsequently, the Fed’s Raphael Bostic commented that he expects three rate hikes in 2022, as opposed to the five hikes forecast by Goldman Sachs analysts and up to seven predicted by the Bank of America.
Pound US Dollar Exchange Rate Forecast: US Data to Exert Further USD Downside?
Looking ahead, this afternoon’s JOLTs report is likely to drive movement in the Pound US Dollar exchange rate. The jobs report is expected to reveal reduced hiring in December, as economists caution that there is a risk payrolls contracted in January.
The ISM manufacturing PMI also looks to have fallen in January, potentially exerting additional ‘Greenback’ headwinds. A continuing risk-on mood will likely keep GBP/USD trading up as Sterling sentiment seems little affected by the ‘Partygate’ scandal.