Pound US Dollar (GBP/USD) Exchange Rate Climbs as BoE Rate Hike Expectations Leap
(Updated 08:45, 19/4/23)
The Pound US Dollar (GBP/USD) exchange rate is strengthening this morning in the wake of hotter-than-expected UK inflation. Against expectations of a modest dip back to single digit headline CPI, inflation slipped to just 10.1%. Bank of England (BoE) rate hike bets jumped to a 97% chance of the cash rate reaching 4.5% at the next policy meeting. GBP investors cheered the news, sending Sterling higher.
At time of writing, the GBP/USD exchange rate is around $1.2455, a 0.25% jump from this morning’s opening levels.
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GBP/USD Exchange Rate Firms Despite Claims of US Economic Momentum
(Updated 17:00, 18/4/23)
The Pound US Dollar exchange rate has pared some its earlier gains on a hawkish speech from Federal Reserve Bank of Atlanta CEO Raphael Bostic. Claiming that the US economy still has plenty of momentum, Bostic is confident that the US will avoid a recession. Expectations of further tightening from the Fed could be supporting the under-pressure US Dollar. Bostic added:
‘There is still work to be done in the area of monetary policy. The economy is still gaining momentum, but inflation is too high, (and) tighter credit conditions could help do Fed’s work.’
At time of writing, the GBP/USD exchange rate is around $1.2417, a 0.37% jump from this morning’s opening levels.
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GBP/USD Exchange Rate Strengthens on Upbeat UK Employment Data
The Pound US Dollar exchange rate is firming as UK labour market data highlights stronger-than-expected job and wage growth.
At time of writing, the GBP/USD exchange rate is around $1.2432, over a half percent jump from this morning’s opening levels.
Pound (GBP) Buoyed by Tight Labour Market
The Pound (GBP) is enjoying renewed strength this morning as the latest labour market data surprised to the upside. Despite the unemployment rate edging higher to 3.8%, an unexpected increase in the number of people joining the workforce lent support.
Against expectations of a 50k raise, those entering the workforce far exceeded the predicted figure as it came in at a 169k increase. It marked the largest increase since April 2022, as both full and part-time self-employed significantly increased in the three months leading up to February.
Elsewhere, wage growth also accelerated faster than expected. Annual regular pay growth was 6.6% YoY, with the previous month’s figure revised to the same level. A faster-than-expected wage growth could be unwelcome news for the Bank of England (BoE). The central bank is already concerned about a wage-price spiral, despite wages still not keeping up with inflation. James Smith, Developed Markets Economist at ING commented:
‘The surprise pick-up in UK wage growth casts doubt over recent indications that pay pressures have started to ease.
‘We should caution that one month doesn’t make a trend, though a similar surprise blowout in services inflation due on Wednesday would inevitably move the dial in favour of a 25bp rate from the Bank of England next month.’
US Dollar (USD) Undermined by Improving Market Mood
Meanwhile, the US Dollar is under increased downward pressure amid a significantly improving market mood. Upbeat macroeconomic data from China have allayed fears of a global economic slowdown, and paired with downbeat US economic data, safe-haven flows are waning.
The world’s second largest economy registered better-than-expected GDP growth as the Chinese economy grew 4.5% YoY in Q1 of this year. Much stronger than the previous month’s 2.9% growth in Q4 2022, and better than an expected 4% climb, risk appetite was bolstered.
Preventing a further collapse for the ‘Greenback’ is mounting expectations that the Fed will at least raise its policy rate once more in May. The US Dollar Index, which compares the ‘Greenback’ to six major currencies, is tracking lower on waning demand.
Pound US Dollar Exchange Rate Forecast: UK Inflation to Bolster Sterling?
Looking ahead, the Pound US Dollar exchange rate could see further movement with the latest headline CPI reading for the UK. Expectations of an easing from 10.4% to 9.8% would still mean inflation remains far above the BoE’s target rate of 2%, which could keep the Pound supported on further rate hike bets.
Meanwhile, the US Dollar could see some influence from a speech from Federal Reserve Board of Governors member Michelle Bowman later today. Any hawkish comments could lift the ‘Greenback’.