Pound US Dollar (GBP/USD) Exchange Rate Firms as US Data Disappoints
At the end of last week, the Pound US Dollar (GBP/USD) exchange rate exceeded a 17-day high struck early on Friday to reach levels not seen since April 2022. Tailwinds were inspired by weakness in the US Dollar (USD) following a disappointing non-farm payrolls report.
At the time of writing, GBP/USD is trading at $1.2836, following an impressive climb of over 1% in the past 7 days.
US Dollar (USD) Climbs then Crashes on Employment Report
The US Dollar traded in a mixed range last week as domestic data alternately impressed and disappointed.
Against several peers, USD firmed on Thursday, buoyed by an upbeat employment change reading from Automatic Data Processing Inc. (ADP). The release was followed an above-forecast services PMI, which extended ‘Greenback’ tailwinds.
Of the former, ADP’s chief economist Nela Richardson observed: ‘Consumer-facing service industries had a strong June… hiring likely is cresting after a late-cycle surge.’
Thursday’s data was particularly welcome following a disappointing manufacturing PMI from the Institute of Supply Management (ISM) on Monday. USD had recouped some losses midweek as the latest meeting minutes from the Federal Open Market Committee (FOMC) struck a hawkish tone but was buoyed further by signs of a recovering economy.
On Friday, however, the currency relinquished the majority of weekly gains, depressed by non-farm payrolls. The data marked the lowest reading since December 2020, as employment fell in retail trade, transportation and warehousing, and changed little for mining, quarrying, and oil and gas extraction.
Pound (GBP) Firms despite Plethora of Headwinds
The Pound (GBP) rose against the majority of its peers last week despite a scarcity of upbeat data, as bullish market sentiment supported the currency alongside expectations of an aggressive monetary policy stance from the Bank of England (BoE).
A better-than-expected finalised manufacturing PMI for the month of June lent moderate Sterling tailwinds on Monday, although GBP/USD traded in a narrow range despite USD weakness. Depressing the Pound may have been persistent UK inflation and fears of a recession.
GBP subsequently climbed, however, as rate hike bets buoyed morale amongst investors. Some analysts are forecasting another bumper 50bps rate hike at the BoE’s August meeting, as rhetoric from the central bank remains hawkish.
GBP/USD trade was quiet midweek as the UK’s services PMI printed as forecast; Thursday saw an initial uptick, however, despite a disappointing fall in UK construction activity in June. At the end of the week, the Pound continued to climb, propelled by economists’ comments that an aggressive monetary policy strategy is necessary.
Allan Monks of JP Morgan suggested that the central bank may have to raise interest rates by a further 2%, adding:
‘A break in behaviour, or hard landing, looks increasingly likely at some point over the next year.’
GBP/USD Exchange Rate Forecast: Full Week of Data to Trigger Volatility?
The Pound US Dollar exchange rate may trade somewhat erratically this coming week, as both the UK and US dockets feature full schedules of data releases.
The Pound is likely to be influenced by BoE comments, the UK’s unemployment rate and May’s GDP release, while ‘Greenback’ trading is expected to trend on economic optimism, inflation and consumer sentiment readings.
If the UK economy contracted as expected over the course of the last year, GBP could come under significant pressure as fears of a recession intensify. Meanwhile, increasing US price pressures in June may buoy the US Dollar, increasing bets of a hawkish policy stance from the Federal Reserve.
Comments from the Fed’s Mary Daly, Loretta Mester and Raphael Bostic are also likely to direct USD movement, if a distinctly dovish or hawkish tone is struck.