Pound US Dollar Exchange Rate News: GBP/USD Trades Narrowly as UK Wages Hit 20-year Low

September 2, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Trades Narrowly as UK Wages Hit 20-year Low

GBP/USD Exchange Rate Range-Bound as Economic Concerns Deepen

The Pound to US Dollar (GBP/USD) exchange rate traded in a narrow range on Friday as investors remain wary of the UK economic outlook

At time of writing the GBP/USD exchange was trading around $1.1544, barely changed from Friday’s opening levels.

Pound (GBP) Trading Stunted by Cost-of-Living Crisis and Recession Fears

Whilst the Pound (GBP) had a slight edge on the US Dollar (USD) on Friday morning, Sterling remained at risk of hitting the lowest level against the US Dollar in 37 years, amid concerns over real wages energy prices and the cost-of-living crisis.

Real wages have now decreased to their lowest point since 2003, which has wiped out 20 years of growth. As the UK population struggles to pay rising bills and exorbitant food and petrol prices many will see their spending power drop by £3,000 a year in the coming months.

This lack of expendable income is worrying investors as sales figures have been on a steady decline since April.

British Chamber of Commerce (BCC) President Baroness Ruby McGregor-Smith was interviewed on BBC Radio Four and called for the government to do more to protect businesses as well:

‘We still believe, currently, that we are going into recession now.

‘We’ve just put out an economic forecast today that talks about that. But all these measures will start to change that because the challenge for us is, we’re not just talking about big businesses, many of whom are going to really, really struggle.

‘We’re talking about more and more and more SMEs, which are the lifeblood of our economy. So they need more support now, as they did during Covid. This for us is no different.’

US Dollar (USD) Trading Low Ahead of Job Market Data

The US Dollar edged lower Friday morning ahead of the American trading session, continuing to trade in a narrow margin with GBP. USD investors were cautious amid an upbeat market mood and pending data release.

European gas prices fell again on Friday morning, which cheered European markets. This stoked a risk on mood, which dented USD. The currency was weaker as it eased off its 20-year high which it achieved against many of its peers during Thursday trading.

These highs were the result of USD investors pricing in on interest rate hikes speculation based on US data. The Federal Reserve have been clear that domestic data will play a key role in determining how much interest rates will rise by.

Data from Friday afternoon focused on the US Labour market in August. Non-Farm payrolls fell from 526,000 to 315,000, narrowly beating forecasts.

However, this was offset by accompanying data showing that domestic unemployment unexpectedly rose from 3.5% to 3.7%.

The underwhelming release triggered some profit taking in the US Dollar on Friday afternoon, leaving it on the back foot against most of its peers apart from the Pound.

GBP/USD Exchange Rate Forecast: Will UK Political Uncertainty Infuse Fresh Volatility into the Pound?

Heading into next week, the key focus at the start of the session will be the result of the Conservative leadership election.

Whoever takes over from Boris Johnson will be expected to hit the ground running to provide support to UK households ahead of October’s rise to the energy price cap. Any delays could lead to the Pound weakening.

Bank of England policymaker Catherine Man is due to speak on Monday evening. Her speech will likely have an impact on the market as investors bet on a seventh constitutive interest rate hike.

In the absence of any notable US economic releases the direction of the US Dollar at the start of next week is likely to be dictated by market risk appetite. Will a gloomy mood help to revive USD demand?

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TAGS: American Dollar Forecasts Dollar Pound Forecasts