GBP/USD Exchange Rate Approaches $1.31
(Updated: 14:15, 15/3/22) The Pound US Dollar exchange rate is on the rise this afternoon. The pairing is building on this morning’s gains as upbeat UK employment figures helps to cement Bank of England (BoE) rate hike expectations.
Sterling is also benefitting from optimism regarding Russia-Ukraine peace talks, on hopes a negotiated end to the conflict could help to alleviate inflationary pressures in the UK.
Meanwhile, investors appear bearish towards the US Dollar today, with traders reluctant to make any aggressive bets ahead of the Federal Reserve’s expected rate hike on Wednesday.
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Pound US Dollar Exchange Rate Buoyed by UK Jobs Data
The Pound US Dollar (GBP/USD) exchange rate is ticking higher this morning, as a robust UK jobs report reinforces Bank of England (BoE) rate hike expectations.
At the time of writing the GBP/USD exchange rate is trading at around $1.3036, up roughly 0.2% from this morning’s opening levels.
Pound (GBP) Rallies as UK Unemployment Drops to Pre-Pandemic Levels
The Pound (GBP) is trending higher against the US Dollar (USD) this morning as GBP investors welcome the publication of the UK’s latest jobs report.
According to data published by the Office for National Statistics (ONS), the UK’s unemployment rate fell from 4.1% to 3.9% in January. This beat expectations for a more modest drop to 4% and was the lowest since the start of the Covid pandemic.
The accompanying average earning release was also supportive of Sterling. Reporting domestic wage growth accelerated from 4.6% to 4.8% over the same period.
While this still lags behind the currency rate of inflation, the narrowing of the real wage gap should help to slightly ease GBP investors’ concerns over the cost-of-living crisis.
GBP exchange rates are subsequently rising this morning as the upbeat jobs figures reaffirm expectations for a BoE rate hike later this week.
Paul Dales, Chief UK Economist at Capital Economics, comments:
‘The further fall in the unemployment rate will only encourage the Bank of England to raise interest rates on Thursday, probably from 0.50% to 0.75%, despite the coming extra hit to households’ real incomes from the war in Ukraine.’
US Dollar (USD) Softens on Ukraine Optimism
The US Dollar (USD) is on the back foot this morning as hopes for a negotiated end to the war in Ukraine is undermining safe-haven demand.
Despite Russian forcing continuing to hit civilian targets in major Ukrainian cities, investors seems optimistic on the chances of the current peace talks making some progress towards a ceasefire.
However the US dollar’s losses remain fairly modest as the optimism over a potential diplomatic solution to Ukraine is being offset by concerns over the resurgence of Covid cases in China.
Markets are concerned over the potential knock-on effects that China’s new lockdowns could have on global supply chains.
Pound US Dollar Exchange Rate Forecast: Fed Rate Hike in the Spotlight
Looking ahead, the Federal Reserve’s latest interest rate decision will no doubt act as the primary catalyst of movement for the Pound US Dollar exchange rate tomorrow.
The Fed is widely expected to deliver its first interest rate hike since 2018 as it seeks to tame surging US inflation.
With the hike largely priced in, the primary focus for USD investors is likely to be on the Fed’s forward guidance, with the US Dollar poised to soar if the bank signals plans to accelerate the tightening of its monetary policy going forward.
Meanwhile, the Bank of England’s rate decision on Thursday will be in the spotlight for GBP investors.
The BoE’s third consecutive rate hike is also largely priced in by investors. The bank’s forward guidance will therefore be key in determining the direction of GBP exchange rates. Could a more cautious outlook weaken the Pound?