Pound US Dollar (GBP/USD) Exchange Rate Lowers as Market Mood Sours

Pound US Dollar (GBP/USD) Exchange Rate Undermined by Souring Market Mood

Article updated 16:30, 12/9/23:

The Pound US Dollar (GBP/USD) exchange rate has remained pressured this afternoon, as the downbeat market mood weighs on Sterling.

As an increasingly risk-sensitive currency, the souring mood is further limiting GBP from gaining ground against safer assets.

However, the US Dollar (USD) appears unable to firmly press the advantage as investors are likely shifting focus to tomorrow’s consumer price index data.

Recently, the Federal Reserve has seemed more and more likely to pause their current tightening cycle in September. As such, tomorrow’s CPI data is seen as key, and could be the deciding factor between a pause and a 25bps hike.

At the time of writing, GBP/USD is trading at around US$1.2479, falling by just over 0.2% from the morning’s rates.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Dented by Disappointing UK Employment Data

The Pound US Dollar (GBP/USD) exchange rate is weakening this morning, as underwhelming employment data weighs on Sterling.

At the time of writing, GBP/USD is trading at around US$1.2473, a fall of just under 0.3% from the morning’s opening rates.

Pound (GBP) Slips amid Disappointing Employment Data

The Pound (GBP) is struggling to attract support this morning, following an underwhelming set of employment data.

While wage growth in the private sector held at record levels, printing in line with forecasts at 7.8%, unemployment increased.

Furthermore, key measures highlighted by the Bank of England (BoE) have begun to fall. The BoE have previously highlighted the vacancy-to-unemployment ratio as one of its important markers, which has shown signs of falling rapidly.

James Smith, at ING, commented:

‘The bottom line is that with the jobs market cooling and wage growth, for now at least, not coming in as hot, the labour market data does not scream a need for the Bank to keep hiking rates much further. The only thing that won’t please officials is that economic inactivity – that is the number of people neither employed nor unemployed – has started to rise again.’

With this data in mind, GBP investors appear to be paring back their bets on further tightening from the BoE. While a hike is still anticipated for September, further rises appear less likely with each fresh release.

This is because the release chimes with BoE Governor Andrew Bailey’s dovish remarks last week. It further paints the picture that the BoE’s aggressive hiking cycle is bearing down on the UK economy, despite inflation seeming sticky.

With recent private sector indexes suggesting economic contraction, the BoE are stuck between a rock and hard place.

US Dollar (USD) Buoyed by Risk-Off Impulse

The US Dollar (USD) is enjoying modest support this morning, amid a risk-averse market mood. This is allowing the safe-haven ‘Greenback’ to strengthen against riskier assets, such as Sterling.

Further underpinning USD is likely continued bets on further rate hikes from the Federal Reserve. While a pause seems likely in September, US Treasury yields are firming this morning, indicating renewed support.

Pound US Dollar Exchange Rate Forecast: UK GDP Contraction to Weigh on GBP?

Looking ahead for the Pound, tomorrow’s core catalyst of movement is likely to be the latest UK GDP data. In July, economists expect the UK economy to have contracted by 0.2%.

This could bring renewed recession anxieties, and pared back rate hike bets, which could weaken the Pound against its peers.

For the US Dollar, tomorrow brings the release of the latest consumer price index data for August. While headline CPI is forecast to heat up, core inflation is expected to cool significantly.

As core inflation excludes volatile items, this may lead to weakness in the ‘Greenback’ by prompting pared back Fed rate hike bets.

John Mulcahey

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