GBP/USD Exchange Rate Trending Narrowly as UK Employment Reports Fall Short of Forecast
Pound Sterling Likely to Be Hampered by Poor UK Unemployment Data
A smaller-than-forecast improvement in the US Import Price Index and the news that US Small Business Optimism held steady at 96.1 instead of rising to the forecast 96.5 saw GBP/USD trending slightly up by the close of trade on Monday. Worse-than-expected UK employment data is likely to curb any appreciation, however, with Average Weekly Earnings failing to rise.
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Last week’s developments continue to weigh on ‘Cable’ today, with the GBP/USD experiencing little movement ahead of the next round of important data releases.
GBP/USD Exchange Rate Forecast: Little Movement until UK Jobs Report Released on Wednesday
Following a dramatic two-day fall against the US Dollar at the end of last week, Pound Sterling has appreciated only slightly to recover from its lowest point since the end of April. Weighed down by Bank of England (BoE) caution and a dovish Inflation Report, which cited weaknesses in the global economy, the GBP/USD exchange rate tumbled from a daily high of 1.5396 to a low of 1.5028.
After a slight recovery yesterday, Pound Sterling is marginally down against the US Dollar, although it is likely that the currency pair will see little action until key data is released tomorrow.
USD/GBP Exchange Rate Stagnant Following Overvaluation Fears and Trader Cash-In
While Friday’s shocking US Non-Farm Payrolls data posted much higher than anticipated, traders were quick to realise their gains. Selling the US Dollar while it was strong resulted in a slump in demand for the ‘Buck’.
Fears of overvaluation also contributed to a cooling in demand for the US Dollar, as traders worried that an overly strong currency could hinder economic progress. This could have had the knock-on effect of delaying an interest rate hike by the Federal Reserve, creating an overall weaker economic outlook for the United States. Traders have therefore been understandably cautious and as a result ‘Cable’ has seen little movement.
Since shooting up to a six-and-a-half-month high of 0.6653 following the NFP release, the ‘Greenback’ has begun to lose ground against Pound Sterling.
GBP/USD Exchange Rate Forecast: Positive US Employment Report Could See Sterling Weaken
Wednesday will be an important day for Pound Sterling, with the release of quarterly employment data and October’s unemployment figures. The Average Weekly Earnings including bonus for Q3 are expected to rise to 3.2% from 3.0%. Increasing wages is one of the indicators used by the BoE Monetary Policy Committee (MPC) to determine interest rates, so a continued rise could renew confidence the British asset.
Policymaker’s confidence in the US economy could further increase if Thursday’s Initial Jobless Claims and Continuing Claims meet or better the anticipated figures. Eric Rosengren, Federal Reserve Bank of Boston President, has stated that ‘Given the uncertainties surrounding the degree of accommodation that is necessary to achieve 2% inflation and full employment, I prefer a path that involves only gradual increases in interest rates and that essentially probes how tight labour markets can be, consistent with our 2% inflation target.’
This suggests that the Federal Reserve could stick to its plans of raising interest rates in December, followed by another rise in the beginning of 2016.
The GBP/USD exchange rate is currently trending narrowly between 1.5089 and 1.5124.