Pound US dollar (GBP/USD) sinks amid rising UK unemployment

Pound US dollar (GBP/USD) exchange rate strengthens despite hawkish Fed comments

(Updated 16:40, 14/05/2024:) The pound US dollar (GBP/USD) exchange rate is rising this afternoon, as a bullish market sentiment permeates global trade, offsetting any potentially hawkish wins for the US dollar (USD),

The latest American PPI printed higher than forecast, warming by 0.5% in April and surpassing market projections of 0.3%.

In addition to this, Federal Chair Jerome Powell urged patience in the Federal Reserve’s fight against stubborn US inflation, pushing back against imminent monetary loosening from the central bank.

During a speech in Amsterdam this afternoon, Powell noted recent inflationary surprises, stating:

‘We had higher readings in the first quarter and higher than we expected. We did not expect this to be a smooth road, but these were higher than I think anybody expected.’

However, despite Powell’s hawkish assertions and a hotter-than-expected American PPI, an increasing appetite for risk serves to stymie investor interest in the safe-haven ‘greenback’.

In turn, the increasingly risk-sensitive pound (GBP) edges higher against its safer peers, recouping this morning’s losses.

Tomorrow, further US inflation data is due for release. Could easing inflation undermine Powell’s recent pushback against Fed rate cuts, denting USD?

At the time of writing, GBP/USD is trading at around $1.2592, up roughly 0.3% from today’s morning level.

Original article continues below:

Pound US dollar (GBP/USD) ticks down following bleak UK jobs data

The pound US dollar (GBP/USD) exchange rate tumbled this morning amid signs of gradual deterioration in the British labour market.

At the time of writing the GBP/USD exchange rate is trading at around $1.2523, down approximately 0.3% from this morning’s opening rate.

Pound (GBP) slumps following jobs data

The pound (GBP) is struggling to garner investor interest this morning as the latest batch of UK employment data underpins market speculations of a June interest rate cut.

Unemployment rose for the second consecutive month in March, printing as forecast at 4.3%, and edging higher from February’s reading of 4.2%, indicating a gradual slowing in the British labour market.

Meanwhile, average earnings (excluding bonuses) in March’s three-month holding steady at 6%, rather than easing to 5.9%.

Yael Selfin, Chief Economist at KPMG UK, noted that rising unemployment will likely lead to slowing wage growth in the coming months as the UK’s recent economic woes begin to deter new hires in Britain.

In turn, this will likely propel the likelihood of imminent Bank of England (BoE) interest rate cuts, applying renewed pressure to the central bank to lower its base rate.

Selfin explains:

‘If (pay data) comes in line with our expectations of only a modest boost, and sufficient to keep annual pay growth on a downward trajectory, this could ignite more dovish sentiment on the MPC ahead of their June vote.’

US dollar (USD) wavers amid data-light morning

The US dollar (USD) is subdued this morning amid a lack of macroeconomic releases so far today.

Ahead of this afternoon’s market-moving releases, recent Federal Reserve commentary appears to keep the ‘greenback’ afloat.

Speaking in Cleveland last night, Fed Vice Chair Philip N Jefferson acknowledged US inflations slow return to the central bank’s 2% target rate. Typically known as a more dovish voice amongst the Fed’s cohort, Jefferson lent hawkish yesterday, suggesting that tighter monetary policy may needed as the Fed await further proof of easing inflation.

Jefferson said:

‘We continue to look for additional evidence that inflation is going to return to our 2% target. Until we have that, I think it is appropriate to keep the policy rate in restrictive territory.’

Should additional policymaker commentary this afternoon underpin policymaker push back against monetary loosening, the US dollar may attract investor support.

Pound US dollar exchange rate forecast: Fed commentary to sink USD?

Fed Chair Jerome Powell is also due to speak later today, with any dovish commentary likely to imbue USD exchange rates with additional volatility. As the Fed’s hawkish consensus begins to diverge amid ramped up Fed rate cut bets, investors will likely be eager to analyse the senior policymaker’s stance towards upcoming monetary policy in the US.

For Sterling, a lack of further releases throughout today’s session could see this morning’s jobs data continue to drive GBP movement, as markets digest the latest signs of loosening in the labour sector.

Otherwise, the increasingly risk-sensitive pound may be left vulnerable to market risk dynamics, with any upbeat trade lending GBP some support against its safer rivals.

Yasmine Arasteh

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