Pound US Dollar (GBP/USD) Exchange Rate Plunges as Jobless Claims
(Updated 20/7/23, 14:45)
The Pound US Dollar (GBP/USD) exchange rate is nosediving this afternoon in the wake of stronger-than-expected initial jobless claims. The number of Americans filing for unemployment benefits fell by 9000 from the previous week, signalling the lowest in two months. The US Dollar subsequently rallied as investors now expect further tightening from the Federal Reserve amid a stubbornly-tight US labour market.
At time of writing the GBP/USD exchange rate is trading around $1.2864, a 0.76% plunge from this morning’s opening levels.
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GBP/USD Exchange Rate Slips as Geopolitical Tensions Sour the Mood
The Pound US Dollar exchange rate is weakening further today as geopolitical tensions add to market woes.
At time of writing the GBP/USD exchange rate is trading around $1.2899, a 0.27% fall from this morning’s opening levels.
US Dollar (USD) Boosted by Downbeat Market Sentiment
The US Dollar (USD) is managing to recoup some of its earlier losses today as a lack of major economic data sees the risk-averse market boost safe-haven flows.
Geopolitical tensions return to the fray as China responds to the claims that the US would impose further restrictions on the chip sector. Xie Feng, China’s ambassador to the US, said on Wednesday:
‘The Chinese government cannot simply sit idly by. There’s a Chinese saying that we will not make provocations, but we will not flinch from provocations.’
Pound (GBP) Slumps on Slashed Rate Hike Bets
Meanwhile, the Pound (GBP) continues to lick its wounds after yesterday’s drastic selloff in the wake of softer-than-expected inflation data. With headline CPI falling to 7.9%, interest rate hike bets were severely slashed, sapping demand for Sterling.
Market analysts are now predicting that the Bank of England (BoE) will no longer need to reach 6% to tame inflation. With reduced odds for a 50bps rate hike now all but diminished, a smaller 25bps increase is now far more likely.
Further weighing on Sterling is a looming recession. Former BoE Governor Mervyn King warns that the central bank could trigger the recession itself by raising interest rates too far. Speaking on a Bloomberg podcast, King added:
‘The risk is that having ignored money when inflation was rising, they’re now ignoring money when inflation is actually about to fall.
What we could see, therefore, is a mistake in both directions over a period of three or four years. If they carry on for the next six months or so, tightening monetary policy, it could well be that they generate both a recession as well as a sharp fall in inflation.’
Pound US Dollar Forecast: Cooling Labour Market to Dent USD?
Looking ahead, the Pound US Dollar exchange rate could see further movement with the latest jobless claims. An expected uptick in unemployment benefit claims could hint at a cooling labour met. The US Dollar could subsequently come under pressure amid tempered rate hike bets.
Meanwhile, the Pound could find some support in the latest retail sales figures. An expected 0.2% climb could see GBP investors buoyed on a resilient retail sector.