Pound US dollar (GBP/USD) exchange rate muted following UK labour data
The pound US dollar (GBP/USD) exchange rate is trapped in a narrow range this morning following the publication of the UK’s latest jobs data.
At the time of writing, GBP/USD is trading at around $1.3078, virtually unchanged from this morning’s opening levels.
Pound (GBP) holds steady despite mixed labour data
The pound (GBP) is managing to remain afloat against the majority of its peers this morning despite the publication of a mixed UK jobs report.
The UK’s latest unemployment rate came in below forecast in August, falling from 4.1% to 4% rather than staying at 4.1% as expected.
This marked the lowest level of unemployment in the UK since the start of the year, marginally underpinning the pound.
However, the latest average earnings (excluding bonuses) index fell from 5.1% to 4.9%, in line with market expectations, and came in at the lowest level in over two years.
The fall in regular wage growth has reignited current Bank of England (BoE) interest rate cut bets for November, ultimately capping any potential GBP gains.
Monica George Michail, Associate Economist at NIESR, commented:
‘Easing wage pressures are supported by a notable fall in services sector pay growth, which recorded 3.6 per cent, down from an average of 5.6 per cent in the first half of this year. This is positive news for inflation and might provide the Bank of England with increased confidence regarding interest rate cuts.’
US dollar (USD) supported by risk-off flows
Amid a lack of economic drivers, the US dollar (USD) is being marginally underpinned by this morning’s anxious trading conditions.
Amid escalating tensions in the Middle East as well as weaker-than-expected Chinese economic data, markets are continuing to opt for safer assets today.
However, USD investors may be reluctant to place any overly aggressive bets ahead of several scheduled speeches from Federal Reserve officials later today.
Any dovish commentary could see Fed rate cut bets increase and in turn dent the US dollar.
GBP/USD exchange rate forecast: UK inflation to undermine Sterling?
Looking ahead, the primary catalyst of movement for the pound US dollar exchange rate looking at tomorrow will likely be the publication of the UK’s latest inflation data.
Both core and headline inflation are forecast to cool in September, with headline inflation expected to drop from 2.2% to 1.9% while core inflation is forecast to cool from 3.6% to 3.4%.
Should the data confirm that headline inflation fell below the Bank of England’s 2% target, this will likely ramp up November BoE rate cut bets and in turn see GBP exchange rates falter.
Turing to the US dollar, domestic data will remain scarce tomorrow and will likely continue to see the ‘greenback’ trade primarily in line with risk dynamics.