(Updated 15:15, 11/04/24) The pound US dollar (GBP/USD) exchange rate relinquished its earlier gains today as Sterling failed to hold the high ground amid stronger-than-forecast US jobs data.
After rising against the US dollar (USD) this morning, the pound (GBP) has since retraced its steps. GBP investors may be holding steady ahead of tomorrow’s British GDP data, which is forecast to show a modest return back to economic expansion, indicating that the UK’s economy could be turning a corner, after dipping into a technical recession last year.
However, despite upbeat jobs data, a cooler-than-expected American PPI, coming in at 0.2% March, served to limit USD’s upside potential against Sterling, leaving the currency pairing ultimately rangebound as the session drew to a close.
At the time of writing, GBP/EUR is trading at €1.2545. This is down from an earlier high of €1.2622 and virtually unchanged from its opening levels.
The focus moving forward will likely be a series of speeches from Federal Reserve policymakers. Should the rate-setters strike hawkish in the wake of sticky inflation reports, we could see GBP/USD stumble.
Tomorrow, the UK GDP data is in the spotlight. Could an economic expansion quell recession fears, thereby seeing Sterling end on a positive note?
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Pound US dollar (GBP/USD) firms following talks of restrictive BoE policy
The pound US dollar (GBP/USD) exchange rate is edging higher this morning following a hawkish Bank of England (BoE) analysis.
At the time of writing the GBP/USD exchange rate is trading at around $1.2622, up approximately 0.2% from this morning’s opening rate.
Pound (GBP) strengthens on hawkish BoE tilt
The pound (GBP) is firming against its major peers this morning following hawkish commentary from Bank of England (BoE) policymaker Megan Greene.
The external member of the central bank’s Monetary Policy Committee (MPC) noted how stubborn services inflation may lead to a continually restrictive outlook from BoE rate-setters.
Greene wrote in the Financial Times:
‘Higher inflation expectations have translated into higher pay growth, by some metrics now between 6-7 per cent in the UK versus 4-5.5 per cent in the US. Such sticky wage growth is a significant component of services inflation.
It will need to slow further to see services inflation return sustainably to target-consistent levels. This last mile may prove the hardest. UK services inflation remains much higher than in the US.’
Greene is due to speak further on monetary policy this evening, could additional push back against monetary unwinding boost GBP?
US dollar (USD) subdued following ‘greenback’ rally
The US dollar (USD) is wavering near a five-month-high this morning following warmer-than-forecast inflation reports.
With both headline and core inflation surprising to the upside, deferred Federal Reserve interest rate cut speculations saw the ‘greenback’ surge. Marking a third consecutive sticky CPI reading, concerns that inflation remains persistent saw USD skyrocket against its peers.
Kathy Bostjancic, Chief Economist at Nationwide wrote:
‘The lack of moderation in inflation will undermine Fed officials’ confidence that inflation is on a sustainable course back to 2% and likely delays rate cuts to September at the earliest and could push off rate reductions to next year.’
According to the CME FedWatch Tool, the likelihood of a June rate cut has slumped to 16.5%, as markets now look towards September for the first dovish movements. While traders initially anticipated a total of five rate cuts this year, markets are now pricing in no more than two by the end of 2024.
Pound US dollar exchange rate forecast: US jobs data to lift the ‘greenback’?
Looking ahead, initial jobless claims are due for release this afternoon. Economists expect the number of newly unemployed US citizens to have fallen during the week ending 6 April. A forecast decline to 215,000 persons claiming unemployment benefits could boost the US dollar, signalling a strengthening labour market.
Also due later today is the latest American producer price index (PPI). The index is due to print at 0.3% in March’s monthly reading, retreating from February’s 0.6% surge. Should the data print as expected, cooling factory inflation could undermine USD’s recent success.
For the pound, a lack of notable releases throughout the session could see GBP hold steady ahead of tomorrow’s high impact GDP release. UK growth is set to have rebounded by 0.2% during the first quarter of 2024, which could serve to boost Sterling sentiment.
In the meantime, a speech from BoE Megan Greene could fuel additional GBP movement. Following the external policymaker’s hawkish assertions this morning, further suggestion that the central bank could keep interest rates ‘higher for longer’ may see GBP strengthen.