Pound US Dollar (GBP/USD) Exchange Rate Extends Impressive Rally
(Updated 16:30, 10/3/23) The Pound US Dollar (GBP/USD) exchange rate continued its rollercoaster ride at the end of this week’s session. The currency pair surged, rising to a ten-day high, as Sterling continued its impressive rebound from a four-month low touched earlier in the week.
The Pound (GBP) initially strengthened after UK GDP exceeded forecasts. The British economy recovered by 0.3% in January, rather than the expected 0.1%, raising hopes that the country may avoid a recession.
Later on, disappointing US jobs data saw the US Dollar (USD) stumble. Although non-farm payrolls exceeded expectations, other parts of the labour market report weren’t so strong.
The US unemployment rate unexpectedly rose from 3.4% to 3.6%, while wage growth unexpectedly cooled month on month. This disappointed USD bulls, with markets paring back Federal Reserve rate hike bets.
The GBP/USD exchange rate surged from around $1.1925 to $1.2100 over the course of the day, a rise of almost 1.5%.
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Pound US Dollar (GBP/USD) Exchange Rate Leaps Higher on UK GDP
The Pound US Dollar (GBP/USD) exchange rate jumped this morning as investors responded to the UK’s latest GDP release, which printed higher than expected.
GBP/USD rose to just shy of $1.20 before softening somewhat. At the time of writing, the pairing is trading at $1.1984, having gained 0.7% over the past day.
Pound (GBP) Strengthens as GDP Beats Forecasts
The Pound (GBP) leapt higher at the start of today’s European session after UK GDP exceeded expectations.
Economists had forecast a modest 0.1% recovery in the UK economy in January, following December’s 0.5% contraction. Instead, GDP printed at 0.3%. The release is the latest piece of evidence suggesting that the British economy is proving stronger than many had feared.
Some commentators are hopeful that the country may be able to avoid a recession this year, while the resilience of the economy may also give the Bank of England (BoE) more headroom to raise interest rates to tackle inflation.
Commenting on today’s data, UK Chancellor Jeremy Hunt said:
‘In the face of severe global challenges, the UK economy has proved more resilient than many expected, but there is a long way to go.
‘Next week, I will set out the next stage of our plan to halve inflation, reduce debt and grow the economy – so we can improve living standards for everyone.’
GBP investors may also be hopeful that Hunt will be more generous in his upcoming Spring Statement. Since the Chancellor tightened fiscal policy at his Autumn Budget, businesses have been calling for tax cuts to create a more fertile investment landscape.
US Dollar (USD) Shored Up by Market Jitters
Meanwhile, the US Dollar (USD) managed to resist steeper losses against the Pound as a risk-off mood underpinned the safe-haven ‘Greenback’.
US bank shares tumbled last night amid concerns about the financial stability of Silicon Valley Bank. This selloff has spread into European markets today.
It's a bloodbath in European banks. pic.twitter.com/BwLdbFc565
— Julianna Tatelbaum (@CNBCJulianna) March 10, 2023
The subsequent risk-aversion is making the US Dollar – considered a safe currency – more appealing to investors. This is limiting its losses against the more risk-sensitive Pound.
GBP/USD Exchange Rate Forecast: Non-Farm Payrolls in Focus
Looking ahead, the latest raft of US employment data is in the spotlight.
Last month, the US non-farm payrolls report shocked markets by smashing forecasts, triggering a surge in the US Dollar and making the Federal Reserve re-evaluate plans to slow down its policy tightening.
Economists expect today’s data to show ongoing strength in the US labour market. The jobless rate is set to hold at a 54-year low, wage growth is forecast to accelerate, and the expected non-farm payrolls figure is 205,000 – a robust reading.
If the US data prints as forecast, or exceeds expectations, the ‘Greenback’ could soar. However, if it disappoints – as initial jobless claims did yesterday – it could dent Fed rate hike bets and drag USD lower.
As for the Pound, the tailwinds from the UK GDP report could continue to keep it aloft. As commentators analyse the details, we could see more GBP movement.