Pound US Dollar (GBP/USD) Exchange Rate Recovers as Risk Sentiment Improves
(Updated 16:10, 8/7/22) After falling sharply this morning, the Pound US Dollar (GBP/USD) exchange rate wavered higher this afternoon, recouping its losses.
The recovery came as the market mood improved, which dampened the appeal of the safe-haven US Dollar (USD).
One factor driving the increased appetite for risk could have been the latest jobs data from the US. The non-farm payrolls figures exceeded expectations, showing that the US economy added 372,000 new payrolled jobs in June. As sometimes happens with US economic data, the positive results seem to have lifted the market mood, thereby denting USD.
I'm in the camp of "the employment report should be bullish for stocks."
We don't want the economy weakening here. The worst bear markets lie with the worst recessions.
Good data is good data.
— Michael Antonelli (@BullandBaird) July 8, 2022
Meanwhile, the Pound (GBP) seems to still be enjoying the news of Boris Johnson’s resignation. GBP investors are hopeful that a new leader and a smooth transition of power will restore some stability to the UK.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Tumbles on UK Woes and Fed Rate Rise Bets
The Pound US Dollar (GBP/USD) exchange rate slumped this morning as the initial relief following Boris Johnson’s resignation fizzles out. Meanwhile, the US Dollar (USD) is regaining its strength ahead of this afternoon’s American employment data.
At the time of writing, GBP/USD is trading at around $1.1935, entirely erasing yesterday’s gains.
Pound (GBP) Slides amid Bleak UK Outlook
The Pound (GBP) is heading downwards today as the political excitement of the last two days begins to fade and investors focus instead on the challenges facing the UK.
First of all, the hope for stability and certainty that lifted the Pound following Johnson’s resignation seems to have faded. Johnson intends to stay on as PM until a new leader is elected, which will likely be in the autumn.
Some analysts are worried that Tory infighting could continue, thereby lessening the party’s ability to govern at an extremely challenging time for the country.
Mark Dowding, CIO of BlueBay Asset Management, warned clients that UK financial assets could continue to struggle:
‘Even with his resignation, [Johnson] remains emboldened to continue as a caretaker PM until the autumn while a new leader is selected, eager to push through his economic agenda and make one final stand.
‘Needless to say, at a time when the UK economy is already on its knees, these developments may continue to add to the negative sentiment and weigh on the outlook for UK financial assets.’
In addition, the UK’s economic outlook remains as bleak as ever.
The latest UK Report on Jobs from KPMG and the Recruitment and Employment Confederation (REC) shows a slowdown in the UK labour market.
Meanwhile, economists are increasingly fearful of a recession in the Eurozone. Energy prices continue to soar, squeezing European households and businesses alike. The UK is particularly vulnerable to a Euro-area economic contraction, which could spread across the channel.
US Dollar (USD) Recovers Strength ahead of Jobs Data
At the same time, the US Dollar has recuperated after yesterday’s dip. The US Dollar Index has touched a fresh two-decade high as Federal Reserve rate hike bets boost the currency.
The Federal Open Market Committee (FOMC) meeting minutes from June reinforced expectations that the Fed would continue along its aggressive tightening path.
USD is also attracting bids ahead of this afternoon’s US jobs data. Economists expect fairly positive results, which would increase the chances of another 75-bp rate rise at the Fed’s July meeting.
Pound US Dollar Exchange Rate Forecast: USD to Climb on Strong Jobs Data?
As the political drama continues in the UK, Sterling could be open to more volatility. If things settle down, with Johnson staying on as PM, then the Pound may remain muted. However, if there is more instability, perhaps with Tory MPs trying to force Johnson out of office, GBP exchange rates could fluctuate.
Meanwhile, USD investors will be looking ahead to the latest non-farm payrolls figures and unemployment rate. If the results reveal ongoing strength in the US jobs market, the ‘Greenback’ could climb even higher.