Pound US Dollar Exchange Rate Recovery Capped by Underwhelming UK Jobs Data

Pound US Dollar Exchange Rate Firms in Risk-On Trade

The Pound US Dollar (GBP/USD) exchange rate is trading with modest gains this morning. The pairing being buoyed by an improving market mood.

At the time of writing the GBP/USD exchange rate is trading at around $1.264. Up roughly 0.2% from this morning’s opening levels.

Pound’s (GBP) Gains Tempered by Disappointing Employment Figures

The Pound (GBP) is ticking higher this morning, buoyed by a prevailing risk-on mood.

However these gains are being capped by the publication of the UK’s latest jobs report.

According to data published by the Office for National Statistics (ONS), UK unemployment unexpectedly rose from 3.7% to 3.8% in April. Consensus forecasts had predicted the jobless rate would slide to 3.6%.

The accompanying average earnings figures report domestic wage growth dropped from 7% to 6.8% over the same period, versus forecasts it would climb to 7.6%.

The wage figures were particularly worrying for GBP investors. April’s figures revealed regular pay (excluding bonuses) continued to lag behind inflation.

This is exacerbating the UK’s cost of living crisis, which GBP investors fear could push the UK economy into a recession.

April’s lacklustre jobs report may also raise uncertainty over future Bank of England (BoE) rate hikes. The softer employment figures may weaken appetite within the bank for further rate hikes.

Renewed Brexit jitters are also undermining demand for the Pound.

The EU is set to launch legal action against the UK after the government published a bill aimed at unilaterally changing the Northern Ireland protocol. GBP investors fear this could trigger a UK-EU trade war.

US Dollar (USD) Dips in Risk-On Trade

The US Dollar (USD) opens today’s session on the defensive. Relinquishing some of yesterday’s considerable gains amid a bullish market mood.

A drop in US Treasury yields is also reinforcing the downside in the ‘Greenback’.

However the pullback in the US Dollar remains very modest in scope. USD exchange rates continue to trade well above this week’s opening levels.

This comes as USD investors appear reluctant to make any aggressive bets ahead of the Federal Reserve’s impending interest rate decision.

Pound US Dollar Exchange Rate Forecast: Fed to Deliver a 75bps Rate Hike?

The Pound US Dollar exchange rate could test new multi-year lows on Wednesday as the Federal Reserve concludes its latest interest rate decision.

Following last week’s US inflation figures, USD investors are now predicting the Fed will raise rates by 75-basis-points this month.

Such an aggressive hike is likely to turbocharge USD exchange rates. Not only will the hike itself make the ‘Greenback’ more attractive, but it is likely to stoke global recession fears, likely boosting safe-haven demand.

Meanwhile the Pound could struggle to find support tomorrow as GBP investors brace for the BoE’s own interest rate decision.

Matthew Andrews

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