Pound US dollar (GBP/USD) exchange rate rallies as hot jobs data dampens BoE rate cut bets
The pound US dollar (GBP/USD) exchange rate jumped to a one-week high this morning after the UK’s latest labour market report exceeded expectations.
At the time of writing, GBP/USD is trading at $1.2799, up around 0.2% on the day.
Pound (GBP) boosted by upbeat UK employment report
The pound (GBP) is attracting support this morning following the latest UK jobs report from the Office for National Statistics (ONS).
The latest labour market overview showed that British unemployment unexpectedly fell in the three months to June, from 4.4% to 4.2%. Analysts had expected the jobless rate to rise to a fresh two-and-a-half-year high of 4.5%.
In addition, UK wage growth slowed far less than forecast over the same period. Average earnings (excluding bonuses) rose by 5.4% on an annual basis. While this was lower than the previous upwardly revised reading of 5.8%, it was well above expectations of a screeching slowdown to 4.6%.
The surprisingly strong jobs data has dampened bets that the Bank of England (BoE) will pursue multiple interest rate cuts through the second half of 2024, thereby boosting the pound.
US dollar (USD) mixed as markets brace for CPI figures
Meanwhile, the US dollar (USD) is mixed this morning as USD investors brace for tomorrow’s potentially significant US consumer price index.
A forecast cooldown in inflation could lead to a sharp selloff in the US dollar, so investors are hesitant to reposition on the currency ahead of the CPI figures.
In the interim, movement in the ‘greenback’ is mostly muted, while mixed external factors are causing the currency to waver.
On the one hand, a cautiously upbeat market mood is dampening demand for the safe-haven currency, although with tensions in the Middle East threatening to boil over, risk appetite is somewhat limited.
On the other, a slight uptick in US Treasury bond yields this morning is helping to cushion the American currency from steeper losses.
GBP/USD exchange rate forecast: UK and US inflation to see the pairing soar?
Looking ahead, GBP/USD could gain further ground this afternoon as the latest US producer price index is due to show cooling price pressures.
Analysts expect July’s PPI reading to show that factory price growth slowed from 0.2% to 0.1% on a monthly basis. As producer prices often feed through to consumers, a soft reading could increase expectations that tomorrow’s CPI will show that headline inflation eased in September.
Any signs of disinflation in the US economy could further fuel bets that the Federal Reserve will cut rates by 50bps at its policy meeting next month, thereby weighing heavily on USD.
The UK’s July CPI figures are also out tomorrow. However, unlike in the US, markets expect British inflation to have accelerated for the first time this year, rising back above the BoE’s 2% target to hit 2.3%.
If both sets of CPI figures tomorrow print as expected, GBP/USD could surge higher.