Pound US Dollar Exchange Rate News: GBP/USD Climbed Despite Underwhelming UK Jobs Data

January 17, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Climbed Despite Underwhelming UK Jobs Data

Pound (GBP) Undermined by Mixed Employment Data

The Pound (GBP) traded erratically against the US Dollar on Tuesday after a flurry of employment data failed to impress investors. Despite unemployment remaining at 3.7%, close to 50-year lows, underlying data caused reason for concern surrounding the labour market.

The number of people claiming unemployment benefits surged by 19.7k, far above last month’s figure of 16.1k. The surge in claimants is the biggest jump since February 2021, highlighting the workforce exodus the UK has been facing since the Covid pandemic.

Bank of England (BoE) Governor Andrew Bailey shared the same concerns as he testified in front of the Treasury Select Committee yesterday. Despite the hope of inflation declining rapidly in 2023, worker shortage remains one of the biggest risks to inflation. Bailey added:

‘The major risk to inflation coming down… is the supply side, and in this country particularly the question of the shrinkage of the labour force.’

Meanwhile, falling real-term wages continues to weigh on the economy, as average real-terms pay tumbled at the fastest rate since records began in 2001. When adjusted for inflation, wages declined by 2.6%. Without adjusting for inflation, wage growth including bonuses surged to 6.4%. However, public sector pay remains far behind private sector, as commented on by Jonathan Ashworth, Shadow Secretary of Work and Pensions:

‘Real wages are plummeting, almost two and a half million people are out of work because of sickness and far too many people – especially the over-50s – aren’t getting the support they need to either stay in work or to go back to work.’

US Dollar (USD) Weakened by Risk-On Impulse

Meanwhile, the US Dollar (USD) struggled for demand after initially shrugging off a risk-on market mood. However, with an improving situation in China and a better-than-expected GDP growth in the world’s second largest economy, the ‘Greenback’ faltered.

Despite China’s GDP growth printing better than expected, it was the slowest rate of growth since the 1970s. For the entirety of 2022, the economy grew by 3.0%, widely missing the official target of 5.5%, the slowest pace of growth since 1976. This highlighted the economic impact of the country’s zero-Covid policy before it was finally scrapped. China’s official statistics bureau said:

‘In 2022, the foundation of economic recovery is not solid as the global situation is still complicated and severe while the domestic triple pressure of demand contraction, supply shock, and weakening expectations is still looming.’

GBP/USD Exchange Rate Forecast: Softening UK Inflation to Buoy the Pound?

Looking ahead, and the Pound US Dollar exchange rate could see further movements when the latest headline CPI reading for the UK is released. Despite an expected modest decline, the inflation rate will still be far higher than the central bank’s target rate of 2-3%. Ongoing interest rate hike expectations could serve to bolster Sterling as the BoE struggles to rein in inflation.

Meanwhile, a speech from Federal Reserve FOMC member John C. Williams later on Tuesday could serve to dictate movement for the ‘Greenback’. Any further hints towards the Fed’s position on monetary policy could sway investors.

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