Pound climbs against US dollar as JOLTs prints below estimate
(Updated 15:55, 04/06/24) The pound is trading tentatively higher against the US dollar this afternoon following the release of the latest US JOLTs report. The data reveals that job openings in April fell by further than expected, coming in at 8.059m versus 8.855m the previous month.
The reading marks a fall in vacancies of 296,000 since March. The US Bureau of Labour Statistics (BLS) affirms that job openings decreased in health care and social assistance, as well as in state and local government education; although openings increased in private educational services.
While the ‘Greenback’ tripped lower initially following the data’s release, the effect in multiple exchange rates seems short-lived. In its press release, the BLS indicated that the outcome was generally unremarkable:
‘Over the month, both the number of hires and total separations were little changed at 5.6 million and 5.4 million, respectively,’ the BLS states; ‘Within separations, quits (3.5 million) and layoffs and discharges (1.5 million) changed little.’
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GBP/USD exchange rate trapped in narrow range
The pound US dollar (GBP/USD) exchange rate is trending broadly sideways this morning following yesterday’s climb. An unexpected decline in May’s US manufacturing PMI dented US dollar (USD) morale on Monday, while risk-on sentiment buoyed the pound (GBP).
At the time of writing, GBP/USD is trading at $1.2758, having risen by almost 0.4% in the past 24 hours.
Pound (GBP) trends sideways on empty docket
The pound is inching sideways against its peers today amid a scarcity of UK data. The release of the British Retail Consortium (BRC)’s retail sales monitor overnight had a limited impact: sales rose in the year to May, but by 0.4% rather than the 1.2% forecast.
Likewise, speculation regarding upcoming action from the Bank of England (BoE) is capped by the fact that the central bank have pledged not to speak until after the upcoming UK election. Nevertheless, a broad consensus that the BoE will enact its first interest rate cut in August paints the UK bank in a hawkish light.
While headline inflation in the UK ticked lower to 2.3% in April, inflation in the service sector remains stubbornly high. The Office for National Statistics (ONS) reported last month that the easing CPI inflation rate was partially offset by small upward contributions from restaurants and hotels, and miscellaneous goods and services.
Given sticky price pressures in the service sector and general uncertainty regarding the trajectory of UK inflation, monetary policy easing from the Bank of England is not fully priced in until November.
Some experts believe that market optimism is unwarranted, however. Kyle Chapman, FX markets analyst at Ballinger Group, comments upon the situation:
‘The Bank of England is generally far more dovish than the markets, and it is very possible that the hawkish rates adjustment has been overextended. There is a risk of a pullback in sterling if inflation falls further, or if the BoE springs a surprise cut in June – a scenario that cannot be ruled out.’
US dollar (USD) steadies after Monday’s tumble
The US dollar is attracting support this morning following yesterday’s selloff as May’s ISM manufacturing PMI disappointed. The US data printed at 48.7 from 49.2 in April, sinking deeper into contraction territory.
In light of the data, fears of a struggling economy initially dampened USD support as manufacturing performance is considered an indicator of economic strength. Timothy Fiore, Survey Chief at ISM, outlined the situation:
‘Demand remains elusive as companies demonstrate an unwillingness to invest due to current monetary policy and other conditions.’
Nevertheless, the ‘Greenback’ has managed to recoup some of its losses as investors look ahead to a likely interest rate cut from the Federal Reserve in September. Bets for a loosening of monetary policy in three months’ time put the probability at 60%, according to the CME FedWatch tool.
With respect to cutting interest rates, the Fed remains the most hawkish compared with the BoE and the European Central Bank (ECB); which is widely expected to enact its first rate cut this week. While USD investors look forward to less restrictive monetary policy in the US, the Fed’s hawkish status lend additional support to the US dollar.
GBP/USD exchange rate forecast: US JOLTs data in focus
The pound US dollar exchange rate could find support this afternoon if the latest US JOLTs release reveals a decrease in job openings in April, as expected. Reduced hiring can be a symptom of high interest rates, as higher borrowing costs sap companies’ hiring budgets.
April’s US factory orders are expected to show an increase on the previous reading, which may help to cushion USD losses. Moreover, economic optimism is forecast to have risen in June, potentially buoying ‘Greenback’ morale.
Meanwhile, the pound is likely to trade at the mercy of external factors such as risk sentiment. A weakening of the US dollar would buoy GBP/USD, although sterling is likely to remain subdued in other exchange rates.