Pound US dollar (GBP/USD) tumbles following upbeat US data
(Updated 15:45, 02/05/2024) The pound US dollar (GBP/USD) exchange rate fell heading into the latter part of the session amid positive American data reports.
After initially wavering against the pound (GBP), signs of a steady market lent the US dollar (USD) some support, with the latest initial jobless claims printing below forecast at 207,000 and holding steady against the previous week’s reading.
Ian Shepherdson, Chief Economist at Pantheon Macroeconomics, said:
‘The underlying trend in productivity growth still looks very healthy. The 1.8% year-over-year growth in unit labor costs is easily consistent with the (2%) inflation target and supports the Fed’s view that the labor market has moved into better balance. The underlying trend in productivity growth still looks very healthy. The 1.8% year-over-year growth in unit labor costs is easily consistent with the (2%) inflation target and supports the Fed’s view that the labor market has moved into better balance.’
Elsewhere, US factory orders rose as expected to 1.6% in March, edging higher from the previous month’s revised 1.2% increase.
At the time of writing, GBP/USD is trading at $1.2484, down from an earlier $1.2516 and down 0.3% unchanged from its opening levels.
The focus moving forward is the the latest US non farm payrolls. Could further signs of improving US employment conditions see investors favour the ‘greenback’?
Original article continues below:
Pound US dollar (GBP/USD) subdued as markets digest dovish Fed tilt
The pound US dollar (GBP/USD) exchange rate is trading without a clear trajectory this morning in the wake of the Federal Reserve’s unexpectedly dovish approach to monetary tightening last night.
At the time of writing the GBP/USD exchange rate is trading at around $1.2516, virtually unchanged from this morning’s opening rate.
US dollar (USD) slumps following tepid Fed commentary
The US dollar (USD) is trapped in a narrow range this morning in the wake of the Federal Reserve’s latest monetary policy update.
The Federal Reserve enacted its sixth consecutive interest rate hold on Wednesday evening. However, markets were caught off guard by Fed Chair Jerome Powell’s seemingly neutral stance.
The widely anticipated rate hold followed an influx of robust US data as well as signs of sticky domestic inflation, which saw investors anticipating a more aggressive approach from the central bank’s meeting last night.
Kyle Rodda, Senior Financial Market Analyst at Capital.com, noted:
‘Ultimately, the bar was set high for a hawkish surprise last night, and the central bank did not attempt to leap it, striking an overall neutral tone and leading to a brief flurry of bullishness in the market.’
The Fed’s mildly dovish tilt last night continues to weigh on USD exchange rates today, as bullish trading conditions seemingly stifle the safe-haven ‘greenback’.
Pound (GBP) stunted by reduced growth forecasts
The pound (GBP) is on the defensive this morning amid a lack of British macroeconomic releases.
In the absence of any notable data, investors look towards the latest outlook from the Organisation for Economic Co-operation and Development (OECD).
The OECD notably lowered its expectation of British economic growth in the coming two years, reducing its growth forecast to 0.4% from February’s forecast of 0.7%. The organisation also presented that growth in 2025 would be slower than previously anticipated, cutting its forecasts to 1%, down from a previous 1.2%.
Citing persistently high interest rates as the core catalyst of lacklustre domestic growth, the OECD said:
‘GDP growth is projected to remain sluggish [in the face of a] waning drag from past monetary tightening.’
With a lack of further UK releases due out today, reduced growth forecasts may prompt markets to raise their Bank of England (BoE) interest rate cut expectations. This in turn may deter investor interest in Sterling.
Pound US dollar exchange rate forecast: markets eye US data
The ‘greenback’ could see a volatile afternoon of trade ahead with the publication of last week’s initial jobless claims. Initial jobless claims for the week ending April 27 are due to show a slight increase in the number of newly unemployed American citizens claiming unemployment benefits, to 212,000.
Elsewhere, an increase of 1.6% in US factory orders across March may then lift USD. The mixed US releases could see the US dollar trade without a clear direction, with any unemployment growth likely to offset a forecast uptick in order growth in March.
Looking to the pound, an ongoing lull in notable UK releases could see the increasingly risk-sensitive pound edge higher against its safe-haven peers amid an extension of today’s bullish market sentiment.