Pound US Dollar (GBP/USD) Exchange Rate Gains amid BoE Rate Bets

Pound US Dollar (GBP/USD) Exchange Rate Firms Despite Above-Forecast US Industrial Figures

(Updated 16:34 16/08/22)

The Pound US Dollar (GBP/USD) exchange rate managed to gain some ground toward the end of the day. The aftershocks of earlier UK employment data on Bank of England (BoE) rate hike prospects may have helped to bolster the currency pair.

Significant bets may have been limited by positive US data, however. Industrial production figures for July rose above forecasts when they printed this afternoon.

At time of writing the GBP/USD exchange rate is at around $1.2093, which is up roughly 0.3% from this morning’s opening figures.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Rangebound amid Risk-Off Mood

The Pound US Dollar (GBP/USD) exchange rate is trading within a narrow range today. A risk-off market mood, as well as a fall to UK real pay, may be limiting gains for the currency pair.

The pair could be seeing support from sustained Bank of England (BoE) rate hike bets, however.

At time of writing the GBP/USD exchange rate is at around $1.2051, virtually unchanged from this morning’s opening figures.

Pound (GBP) Muted as Real Pay Sees Biggest Fall since 2001

The Pound (GBP) is seeing limited bets after the release of mixed employment data. A retreat in global risk may also be keeping the currency subdued today.

The mixed jobs figures are leading to varied movements for Sterling. Unemployment remained held steady at 3.8%, although a drop in the number of job vacancies indicated a cooling in the UK’s labour market. This may be denting confidence in GBP.

Earnings figures also painted a mixed picture for the Pound. Average pay including bonuses rose by 5.1% in June versus a more sustained slowdown. Earnings excluding bonuses also surprised to the upside, with above-forecast growth of 4.7%.

The impact of the UK’s soaring inflation has likely been the cause of limited bets on the currency today, however. After taking inflation into account, figures indicated that real pay fell by 3%. This was the fastest decline recorded since 2001.

The Pound could be underpinned by increased bets on rate hikes from the BoE, however.

Thomas Pugh, economist at RSM UK, said:

‘The leap in regular pay growth to 4.7% in June, which is miles above the 3%-3.5% that’s consistent with the 2% inflation target, significantly raises the chances that the Monetary Policy Committee (MPC) will go for a second 50 basis point rise in interest rates in September.’

US Dollar (USD) Ticks Up amid Fed Rate Hike Bets

The US Dollar (USD) is trending higher against its rivals today. A fragile risk appetite may be helping to bolster the safe-haven ‘Greenback’ amid fears of a global economic slowdown.

Sustained bets on future rate hikes from the Federal Reserve may also be lending support to USD today. Multiple Fed policymakers have signalled their support for further increases to the central bank’s interest rate.

Speaking on Friday, Richmond Fed President Thomas Barkin said:

‘I’d like to see a period of sustained inflation under control, and until we do that I think we’re just going to have to continue to move rates into restrictive territory.’

Investors will be awaiting Wednesday’s FOMC minutes for further impetus around the currency. Market bets have been oscillating between a 0.5% and 0.75% interest rate hike.

GBP/USD Exchange Rate Forecast: Will UK Inflation Figures Increase BoE Rate Hike Bets?

Looking ahead to the rest of the week for Sterling, Wednesday’s inflation figures could have a mixed effect on the currency. The data for July is forecast to indicate a rise to fresh highs of 9.8%, the country’s highest point since 1982.

On the one hand, the figures could weigh on the currency amid the UK’s cost-of-living crisis. On the other, the data could push investors toward increased bets on interest rate hikes from the BoE.

Friday’s retail sales data could curb any prior gains if they slip further as predicted.

For the US Dollar, the release of the latest FOMC minutes on Wednesday could push USD higher if they echo the Fed’s current hawkish stance. Gains for the currency could be capped by a predicted slowdown in retail sales growth earlier that day.

Gareth Monk

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