Pound US Dollar Exchange Rate News: GBP/USD Ticked Higher on Bolstered BoE Rate Hike Bets

June 8, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Ticked Higher on Bolstered BoE Rate Hike Bets

Pound (GBP) Supported by Expectations of Further Tightening

The Pound (GBP) continued to struggle for sustained demand amid a lack of major economic data. However, despite the thin trading conditions, GBP investors could be buoyed on the prospect of further tightening from the Bank of England (BoE).

With a quarter point interest rate rise all but priced in for the June policy meeting, odds are increasing for further hikes. Expectations of the central bank to raise interest rates to 5.5% by the end of the year could be preventing Sterling sliding. The market now places the probability of raising rates to record levels now sits at 60%.

However, data from the Recruitment and Employment Confederation revealed that the labour market could finally be cooling. The report concluded that starting salaries had dropped to its lowest levels in over two years, with staff demand falling to a five-month low. Clare Warnes of KPMG UK, said of the data:

‘The jobs market remains subdued, with the latest survey results showing dampened hiring activity amid ongoing economic concerns. Overall vacancy growth slowed for the third month as businesses delayed hiring decisions, and permanent staff appointments fell for the eighth month in a row as many employers stick to temps.’

US Dollar (USD) Undermined by Potential Fed Pause

Meanwhile, the US Dollar (USD) also struggled for demand as investors became cautious ahead of a flurry of data releases next week.

Also preventing any further support for the ‘Greenback’ was the growing uncertainty surrounding the monetary policy of the Federal Reserve. Expectations of a 25bps rate hike in next week’s policy meeting could be providing the US Dollar with some modest support. But there is still belief that a pause could be the case instead. Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING, said of the precarious situation:

‘For the near term, it looks like the dollar can hold the majority of its recent gains into next Wednesday’s FOMC meeting – though the release of the US May CPI next Tuesday will be a big market driver too.’

GBP/USD Exchange Rate Forecast: Cooling US Labour Market to Dent the Dollar?

Looking ahead, the Pound US Dollar exchange rate could see further movement if initial jobless claims mirror the prior concerns of a cooling labour market. Expectations of another climb in unemployment claims could sap demand for the ‘Greenback’.

Meanwhile, elevated interest rate hike bets could keep Sterling supported amid a lack of economic data. But concerns surrounding its own cooling labour market could pare those gains.

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TAGS: Pound Dollar Forecasts