Pound US dollar (GBP/USD) exchange rate plunges following hot US jobs data
(Updated 14:35, 04/10/24) The pound US dollar (GBP/USD) exchange rate has surrendered its earlier gains and slumped this afternoon, after the latest US non-farm payrolls report smashed forecasts.
According to the latest data, the US economy added 254,000 jobs last month, versus the 140,000 expected. This was the strongest jobs growth in six months and above the monthly average for the past year. In addition, August’s figure was revised up from 142,000 to 159,000.
As a result, market bets on another 50bps interest rate cut from the Federal Reserve have all but evaporated. According to the CME’s FedWatch tool, the probability of a half-point cut at the Fed’s next meeting is just 9%, down from 32% yesterday and 53% one week ago.
This has seen the US dollar (USD) surge higher, with the pound (GBP) losing its earlier gains against the American currency. GBP/USD is currently trading at $1.3087, down 0.3% on the day and close to a three-week low.
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Pound US dollar (GBP/USD) exchange rate edges higher but remains weak
The pound US dollar (GBP/USD) exchange rate is recouping some of yesterday’s losses this morning, although it remains sharply lower on the week.
At the time of writing, GBP/USD is trading at $1.3158. This is up over 0.2% on the day, but down around 1.5% on the week.
Pound (GBP) bounces following yesterday’s selloff
The pound (GBP) is regaining ground today following yesterday’s dramatic decline.
GBP exchange rates plunged as markets ramped up bets on more Bank of England (BoE) interest rate cuts in the wake of comments from BoE Governor Andrew Bailey.
In a Guardian interview, Bailey said that the bank may be ‘more aggressive’ in lowering rates, if UK inflation continues to cool. These remarks sent Sterling into a tailspin.
However, investors may have overdone it. Today the pound is regaining ground, having seemingly entered oversold conditions.
In addition, contrasting comments from BoE Chief Economist Huw Pill are helping to support Sterling. In a speech this morning, Pill said:
‘While further cuts in Bank Rate remain in prospect should the economic and inflation outlook evolve broadly as expected, it will be important to guard against the risk of cutting rates either too far or too fast.
‘For me, the need for such caution points to a gradual withdrawal of monetary policy restriction.’
However, Sterling’s gains are severely limited.
US dollar (USD) holds strong ahead of high-impact data
Meanwhile, the US dollar (USD) remains strong today, which is limiting GBP/USD’s recovery.
The safe-haven ‘greenback’ has drawn support this week from widespread risk aversion and a pullback in bets on another 50bps interest rate cut from the Federal Reserve.
Escalating tensions in the Middle East have rattled markets this week, with Iran launching a missile strike on Israel following Israel’s ground assault on southern Lebanon.
In addition, stronger US jobs data and comments from Fed Chair Jerome Powell dented rate cut bets. This both boosted the US dollar and weighed on risk appetite.
Today, these factors continue to underpin USD. However, the currency is struggling to push higher as investors await high-impact data this afternoon.
GBP/USD exchange rate forecast: non-farm payrolls to drive more volatility?
Looking ahead, the focus for today is the US non-farm payrolls report, which has the potential to drive significant volatility in the pound US dollar pairing.
A huge slowdown in hiring activity earlier in the year was one of the key drivers behind the Fed’s decision to cut interest rates last month. Policymakers will be looking closely at today’s figures.
Analysts expect hiring to have remained relatively steady in September, with the US adding 140,000 new jobs, after adding 142,000 in August. Such a result could lend USD modest support, as it may dispel fears of a slowing US labour market.
GBP/USD could see much more dramatic movement if the figure beats or misses forecasts. A lower figure could boost Fed rate cut bets, which would likely weigh heavily on the US dollar. Conversely, a stronger figure could propel USD to new multi-week highs against the pound.