Pound US Dollar (GBP/USD) Exchange Rate Trades in a Wide Range
The Pound US Dollar (GBP/USD) exchange rate has seesawed through today’s session so far, as US jobless claims increased over the course of last week, demonstrating the effects of restrictive monetary policy on the US economy.
At the time of writing, GBP/USD is trading at $1.2572, having fallen by almost 0.2% in the past 24 hours.
US Dollar (USD) Stalls Ahead of Jobs Data
The US Dollar (USD) is experiencing headwinds against its peers today as initial jobless claims for the week ending 2 December exceeded the previous reading of 219k. This afternoon’s release printed at 220k – below expectations but still the second-highest reading since September.
While today’s data is not so significant as tomorrow’s nonfarm payrolls report and unemployment release, it adds to weaker ‘Greenback’ sentiment already established by a hawkish Bank of Japan (BoJ).
The Chairman of Japan’s central bank, Kazuo Ueda, signalled this morning that a change in monetary policy is coming, buoying the Japanese Yen (JPY) against USD and subsequently tipping the US Dollar Index (DXY) into the red.
Signs of economic stress – a widening trade deficit and PMIs teetering on the edge of contraction territory – are causing concern amongst US Dollar traders, who perceive that the high interest rates set by the Federal Reserve – as well as other central banks – are damaging economic growth.
A 97.7% chance of the Fed keeping interest rates unchanged next week, according to the CME Group’s FedWatch Tool, does little to ease such fears. While some economists are optimistic, others such as Mohamed El-Erian consider:
‘Consensus forecasts are too optimistic about the global economy… [the prospect of dodging a major recession] lets people be overly optimistic about next year.’
Pound (GBP) Slumps despite Rising House Prices
The Pound (GBP) continues to come under pressure today as house-price related tailwinds fail to override risk-off woes and concerns over economic instability.
This morning, the average house price was revealed to have jumped by nearly £1,400 month-on-month: a 0.2% increase on October’s reading. According to experts, this is due to a shortage of properties versus demand.
Kim Kinnaird, director of Halifax Mortgages, said: ‘The resilience seen in house prices during 2023 continues to be underpinned by a shortage of properties available… With mortgage rates starting to ease slightly, this may be leading to increased buyer confidence, seeing people more inclined to push ahead with their home purchases.’
Yet worries over the state of the UK’s economy appear to be preventing a bullish response to the data. As Bank of England Governor Andrew Bailey reaffirms the bank’s commitment to keep its benchmark rate at current levels for a long time, fears of economic derailment intensify.
Bailey himself acknowledged yesterday that financial stability is at risk, saying: ‘The full effect of higher interest rates is yet to come through. Therefore we remain vigilant to financial stability risks that might arise.’
Elsewhere, a risk-off mood contributed towards Pound headwinds following credit agency Moody’s downgrade of China’s credit outlook. The implications for the world’s second-largest economy reactivated wider concerns about a global economic slowdown.
GBP/USD Exchange Rate Forecast: US Data to Dominate?
Tomorrow, key data from the US is likely to drive movement in the Pound US Dollar exchange rate.
Employment data early in the European afternoon is expected to reveal an increase in US jobs, though unemployment is forecast to remain unchanged at 3.9%. If the releases print as expected, the ‘Greenback’ is likely to climb on the prospect of a growing domestic workforce.
Later in the session, the University of Michigan’s consumer sentiment indicator is cued to increase to 62 for the month of December. An uptick in morale is likely to inspire further USD tailwinds.