Pound US Dollar (GBP/USD) Exchange Rate Recovers from Post-NFP Slump

Pound US Dollar (GBP/USD) Exchange Rate Rebounds as Markets Digest US Jobs Data

(Updated 16:20, 05/05/23) The Pound US Dollar (GBP/USD) exchange rate experiences some volatility this afternoon. The pairing plunged after hot US jobs data, but then managed to bounce back.

The latest US non-farm payrolls report smashed forecasts. Economists had expected job creation in the US to have slowed to a 28-month low. Instead, employment accelerated to a three-month high. The figure printed at 258,000, rather than 180,000.

Meanwhile, the jobless rate also surprised to the upside. It dipped from 3.5% to 3.4%, matching a 50-year low hit in January, rather than rising to 3.6%.

The data suggests that the US labour market remains tight, which reignited Federal Reserve rate hike bets after Wednesday’s dovish rate decision. The US Dollar (USD) initially surged higher.

However, the GBP/USD exchange rate managed to rebound. Investors may have been retracing their steps after a knee-jerk reaction, or they could have been cashing in on the sudden spike in USD.

Additionally, the non-farm payrolls print was not as hot as it seemed on first sight. While April’s figure was strong, the previous month’s result suffered a significant downward revision. March’s figure came in at 165,000, rather than 236,000.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Hits 11-Month High

The Pound US Dollar (GBP/USD) exchange rate rose to an 11-month high earlier today, as the US Dollar (USD) continues to flounder following the Federal Reserve’s dovish interest rate decision.

At the time of writing, GBP/USD is trading at $1.2603, having retreated from an earlier high of $1.2634 due to profit-taking.

US Dollar (USD) Languishes as Markets Expect Fed Pause

The US Dollar hit an 11-month low against the Pound (GBP) this morning, as markets continue to adjust their expectations for further rate rises from the Federal Reserve.

On Wednesday, the Fed raised rates by 25bps but signalled that this month’s hike may be their last. This triggered a USD selloff.

Since then, renewed anxiety in the US banking sector has intensified. Several regional lenders have seen their shares slump over the past two days, with many fearing that the selloff could snowball into a full-blown banking crisis.

In the policy statement accompanying the Fed’s decision, the US central bank noted that tighter credit conditions due to the recent turmoil in the banking sector could reduce the need for further rate hikes. As a result, this fresh bout of panic seems to be further dampening Fed bets.

Pound (GBP) Buoyed by BoE Bets

Meanwhile, the Pound is underpinned by expectations of more policy tightening from the Bank of England (BoE), ahead of its meeting in six days’ time.

With UK inflation remaining stubbornly high, the economy faring better than expected, and signs of higher wages potentially fuelling price pressures, markets are pricing in two more rate increases from the BoE.

Furthermore, a current upbeat mood in European markets is supporting the increasingly risk-sensitive Pound, aiding it against the safer US Dollar.

GBP/USD Exchange Rate Forecast: US Jobs Data to Push the Pairing Even Higher?

This afternoon could see the GBP/USD exchange rate climb even higher, as forecasts for the upcoming US employment data aren’t particularly rosy.

The non-farm payrolls figure is expected to have fallen sharply last month, with forecasters expecting the US economy will have added 180,000 jobs in April 2023 – the smallest rise since December 2020. Meanwhile, the US unemployment rate is set to tick higher from 3.5% to 3.6%.

If the latest data meets expectations, it would add to evidence that the US labour market is cooling. This would likely reinforce expectations that the Fed is done raising rates, thereby potentially putting notable pressure on the US Dollar.

As for the Pound, UK data remains thin as the week’s session comes to a close. As a result, risk sentiment could drive most GBP movement. Will the current bullish mood support Sterling through to the weekend?

Samuel Birnie

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