Pound US Dollar (GBP/USD) Exchange Rate Remains Rangebound following US Employment Report
(Updated 15:15, 2/9/22) The Pound US Dollar (GBP/USD) exchange rate traded in a narrow range today as the latest US labour market data neither boosted nor dented Federal Reserve rate rise bets.
Markets were braced for the latest American employment data, as a strong reading could have increased the likelihood of a 75-bp rate rise from the Fed at its next policy decision.
The data was indeed strong, but it failed to boost rate rise bets as it also showed signs of easing inflation.
The US economy added 315,000 jobs in August, above forecasts of 300,000. Meanwhile, the unemployment rate unexpectedly rose from 3.5% to 3.7%, but this was mainly because more people entered the labour market; the US participation rate jumped from 62.1% to 62.4%.
This rise in people rejoining the workforce contributed to slower wage growth. Month on month, average earnings increased by 0.3%, down from 0.5% in July and below forecasts of 0.4%. Markets have taken this as an indication that wage-driven inflation may have peaked, which puts less pressure on the Fed to continue with aggressive rate hikes.
Overall, the data implies that the US labour market remains strong, challenging the narrative that the country is already in a recession. This in turn has cheered global markets, which keeps some pressure on the safe-haven US Dollar (USD).
However, the Pound (GBP) is still incredibly weak as the UK faces multiple challenges. Soaring government debt, political instability, the cost-of-living crisis and a looming recession all conspire to keep GBP/USD down near a 29-month low.
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Pound US Dollar (GBP/USD) Exchange Rate Stems Losses as Markets Brace for Non-Farm Payrolls
The Pound US Dollar (GBP/USD) exchange rate remains muted today as UK economic fears persist and markets await the latest US labour market data.
At the time of writing, GBP/USD is trading at around $1.1547, up marginally from today’s low of $1.1530.
Pound (GBP) Stabilises at 29-Month Low
The Pound (GBP) is wallowing close to a 29-month low against the US Dollar (USD) today as recession fears weigh on the UK currency.
Earlier in the week, Goldman Sachs echoed the Bank of England (BoE) in forecasting a UK recession beginning in the fourth quarter of this year.
Since then, the British Chambers of Commerce (BBC) has released its latest forecast. The BCC believes that the UK is currently entering a recession.
Speaking to BBC Radio 4’s Today Programme, BCC President Baroness Ruby McGregor-Smith warned that small businesses could struggle amid the worsening conditions. McGregor-Smith said:
‘We still believe, currently, that we are going into recession now.
‘We’ve just put out an economic forecast today that talks about that. But all these measures will start to change that because the challenge for us is, we’re not just talking about big businesses, many of whom are going to really, really struggle.
‘We’re talking about more and more and more SMEs, which are the lifeblood of our economy. So they need more support now, as they did during Covid. This for us is no different.’
Worries about the UK’s deteriorating outlook have hammered the Pound in recent weeks. August was the worst month for the GBP/USD exchange rate since October 2016, with the pair dropping over 5%.
Sterling seems to have stabilised today, with the UK’s dire economic situation now priced into the currency. However, there is the potential for further losses.
US Dollar (USD) Muted amid Risk-On Trade
Meanwhile, the safe-haven US Dollar is edging lower today amid a fairly upbeat market mood and hesitancy among USD investors.
European markets appear cautiously optimistic this morning as energy prices fall sharply once again. At the time of writing, EU gas prices are down over 11% on the day and over 35% on the week.
Markets are anxious that surging energy prices could push the Eurozone into a recession this year, as forecast by Fitch Ratings yesterday. Therefore, today’s pullback in the energy market is soothing recession fears somewhat.
In addition, USD investors seem to be waiting on the side-lines ahead of today’s non-farm payrolls data.
The Federal Reserve is considering either a 50- or 75-bp rate rise at its next meeting, depending on the data. Therefore, markets will use today’s report to help gauge the Fed’s next move.
Economists expect another strong rise in US employment, which should boost the ‘Greenback’. However, the ADP employment change figures earlier in the week missed market forecasts. This seems to have introduced some doubt among investors, keeping USD action somewhat subdued.
GBP/USD Exchange Rate Forecast: US Jobs Data in the Spotlight
Looking ahead, the non-farm payrolls report is likely to have a huge impact on GBP/USD. If the data suggests that the US labour market remains healthy, markets will likely increase their expectations for another jumbo rate rise at the Fed’s next meeting. The US Dollar could subsequently hit fresh highs against the British Pound.
However, if the latest data misses forecasts then markets may pare rate rise bets, and GBP/USD could regain some of the ground lost this week.
That said, any recovery in the Pound is likely to be extremely limited as fears over the UK economy persist.