Pound US Dollar (GBP/USD) Exchange Rate Plummets amid Red Hot US Jobs Data

Pound US Dollar Exchange Rate Rockets on Strong Jobs Data

(Updated 14:15, 05/08/2022) The Pound US Dollar (GBP/USD) exchange rate plunged this afternoon after better-than-expected jobs data boosted Federal Reserve rate hikes.

Nonfarm payrolls in the US soared by 528,000 in July, far surpassing market expectations of 250,000. Further buoying the US Dollar was unemployment rate, expected to remain steady at 3.6%, edged even lower to 3.5%. Investors had hoped for further hints as to how the Fed will approach further rate hikes, and now the odds of a 75bps hike have surged to 61% from 40% prior to the jobs data.

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Pound US Dollar Exchange Rate Trades Narrowly after BoE Bold Rate Hike

The Pound US Dollar (GBP/USD) exchange rate is fluctuating today after the Bank of England (BoE) raised interest rates by 50bps but outlined a bleak economic outlook.

At time of writing the GBP/USD exchange rate is trading around $1.2140, relatively unchanged from this morning’s opening levels.

Pound (GBP) Under Pressure as BoE Issues Recession Warning

The Pound (GBP) is struggling to find demand today in the wake of dovish comments from the BoE. After yesterday’s 50bps rate hike, the biggest in 27 years, to bring the interest rate up to 1.75%, the Pound tumbled dramatically. Following the decision, the BoE issued a stark warning of the UK economy.

Weighing on Sterling today is the bleak outlook that the UK is facing. Governor Andrew Bailey followed the interest rate decision with a gloomy outlook for the UK. A recession is on the cards that could last over a year as inflation is expected to peak at 13%. Bailey also warned that interest rates will not return to pre-financial crisis levels, adding:

‘We don’t know what normal interest rates will be in future (and) don’t think selling QE assets will have a big impact on market interest rates. We are going to be dealing with impact of high inflation for some time.’

 US Dollar (USD) Recovers Modestly Ahead of Crucial Jobs Data

The US Dollar rebounded after recent hawkish comments from the Federal Reserve has propped up bets of further rate hikes. Despite rising inflationary pressures, Fed Chair Jerome Powell still points to a strong labour market. With key employment data due to print later today, markets are eagerly anticipating the outcome. If a strong labour market persists, the ‘Greenback’ could strengthen on increased rate hike bets.

Elsewhere, after US House of Representatives Speaker Nancy Pelosi provoked China over her visit to Taiwan, potential headwinds could weigh on the US Dollar. Unbacked by President Joe Biden, Pelosi became the first US senior official to visit the island in over 25 years. Geopolitical tensions were already high between the two nations, and now the fallout from such a visit could put the US Dollar under renewed pressure.

Pound US Dollar Forecast: Crucial US Jobs Data to Boost the US Dollar?

All eyes will be on the release of the US unemployment rate and non-farm payrolls later in the session. Any further signs that the labour market is slowing, then the ‘Greenback’ could come under further pressure. But Fed rate bets could bolster if the data prints strongly.

Meanwhile, with no more data for the Pound, and the cost-of-living crisis spiralling out of control, souring market sentiment alone could sink Sterling once again.

Danny Tingle

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