Pound US Dollar (GBP/USD) Exchange Rate Edges Lower amid Lack of UK Data

April 5, 2023 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Edges Lower amid Lack of UK Data

Pound US Dollar (GBP/USD) Exchange Rate Edges Lower amid Lack of UK Data

The Pound US Dollar (GBP/USD) exchange rate traded in limited bounds during Wednesday’s morning session, as a lack of clear drivers kept GBP limited.

At the time of writing, GBP/USD traded at around US$1.2477, showing little movement from Wednesday’s opening rates, but trended downward.

Pound (GBP) Limited by Continued Dearth of Data

The Pound (GBP) saw limited trade during Wednesday morning, as a lack of impactful data releases left GBP to trade in tandem with specific fluctuations in currency.

As such, Sterling traded without much clear direction. However, an upbeat showing from the final service sector index for March may have brought some cushioning, preventing GBP from bottoming out against some peers.

Dr John Glen, Chief Economist at the Chartered Institute of Procurement and Supply (CIPS), commented on the index: ‘The biggest surge in new business for 12 months in the dominant services sector could trigger hopes that a turnaround is finally on the horizon for the UK economy. Underlined by the continuing upward trend from last month’s robust levels of overall activity and March’s strong business optimism amongst respondents also had a positive effect.’

On the other hand, a downbeat market mood at the beginning of the European session may have kept a dampener on GBP exchange rates due to it’s increasingly risk sensitive nature.

US Dollar (USD) Undermined as Markets Continue to Digest Signs of Cooling Jobs Market

The US Dollar (USD) lacked firm support during Wednesday’s morning trade, as Tuesday’s JOLTs job openings data appeared to undermine sentiment toward the ‘Greenback’.

The openings for February fell by around 630,000, indicating a fall far sharper than was forecast by economists and analysts. Because of this surprising release, anxieties flared over the condition of the US economy which appeared to keep the US Dollar in a muted state.

Furthermore, USD investors appeared to begin paring back their rate hike bets. This was explored by Francesco Pesole, FX Strategist at ING, who stated: ‘Markets are currently pricing in around 80bp of cuts by year-end, compared to around 60bp before the JOLTS data. The implied probability of a May rate hike dropped from 65% to 47% after the release. We think this is a testament to how Fed expectations remain highly volatile – in our view, due to the Fed’s unclear communication.’

However, the market mood seemed to grow more cautious at the beginning of Wednesday’s European trading session. Because of this, safe haven flows may have served to prevent the ‘Greenback’ from posting losses against most major peers.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: US Data in Focus

Looking ahead for the US Dollar (USD), Wednesday afternoon brings a duo of key economic data releases which are likely to provide some direction.

First up is the latest balance of trade data, reflecting activity in February. This is forecast to show an overall increase in the US trade deficit, and a slump in exports. As such, this could weigh on the ‘Greenback’ by pointing to weakness in international trade.

Then, the latest ISM non manufacturing PMI is due to release. This reflects the US service sector’s activity throughout March, which is forecast to remain in growth territory. However, due to recent data around the US labour market, the minor slowdown could weaken the US Dollar due to increasing anxieties over the US economy.

On Friday, the latest non farm payrolls data, reflecting March, is due to print. With a fall to 240,000 forecast, this could weigh further on the ‘Greenback’ and prompt a further paring back of interest rate hike bets.

For the Pound (GBP), the rest of the week continues the theme of a lack of macroeconomic data releases. Because of this, Sterling could trade in tandem with other currency movements.

If the upcoming US data weakens the ‘Greenback’, Sterling could strengthen against it. However, if the market mood continues to sour, the risk sensitive aspect of GBP could weigh on it.

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TAGS: Pound Dollar Forecasts