Pound US Dollar (GBP/USD) Exchange Rate Soars amid Hotter-Than-Expected Labour Data

June 13, 2023 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Soars amid Hotter-Than-Expected Labour Data

Pound US Dollar (GBP/USD) Exchange Rate Soars amid Hotter-Than-Expected Labour Data

The Pound US Dollar (GBP/USD) exchange rate strengthened significantly during Tuesday’s trade, following hotter-than-expected UK labour data, which cemented an additional rate hike from the Bank of England (BoE).

At the time of writing, GBP/USD traded at around US$1.2566, climbing by just under 0.5% from Tuesday’s morning rates.

Pound (GBP) Soars amid Hotter-Than-Expected Labour Data

The Pound (GBP) climbed during the European session Tuesday, following surprise prints across a set of UK labour data released in the morning.

Wage growth especially was notable, as average earnings excluding bonuses climbed to 7.2% in April over a yearly basis, up from March’s reading of 6.8%. Because of this, bets on further tightening from the Bank of England (BoE) surged.

James Smith, Developed Markets Economist at ING, commented: ‘For the Bank of England, all of this cements a June rate hike and if the inflation numbers continue to come in hot, it’s quite plausible that we end up with an August move as well. Much will depend on how CPI inflation comes out over the next couple of months.’

Elsewhere, a cautiously upbeat market mood may have served to further elevate the Pound against most of its peers, due to Sterling’s increasingly risk sensitive nature.

With investors feeling optimistic about global economic growth with a pause from the Federal Reserve on the cards, riskier assets gained ground across the board.

US Dollar (USD) Struggles as Investors Await CPI Data

The US Dollar (USD) struggled for support during the early European session on Tuesday, as investors awaited the latest consumer price index data.

The focus will likely be on the core inflation data, which is forecast by economists to hold at 0.4% on a monthly basis, while the yearly figure is forecast to cool to 5.3%.

Analysts at ING commented that: ‘Tuesday’s CPI report could see pricing move even further in favour of a hike – currently the consensus is for core CPI to come in at 0.4% month-on-month, but if we get a shock 0.5% that could be sufficient to convince enough FOMC members to vote for a hike.’

Because of this, the safe haven ‘Greenback’ was unable to gain much ground as investors moved to riskier investment opportunities, amid a modestly buoyant market mood.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: Fed Rate Decision in Spotlight

Looking ahead for the US Dollar (USD), following the latest inflation data which is due to print in the afternoon, two key data releases are scheduled for Wednesday’s session.

The most impactful will be the Federal Reserve’s latest interest rate decision. The Fed are widely expected by markets and economists to enact a pause in their current cycle of interest rate hikes. If this comes to pass, it may weigh heavily on the ‘Greenback’ as investors look elsewhere for a return on their investment.

However, if Fed Chair Jerome Powell strikes a hawkish tone in any accompanying forward guidance, the ‘Greenback’ could be cushioned from fully bottoming out, as the indication that hiking may resume at a later occasion.

Preceding this is the latest PPI data release. On a monthly basis, US PPI is forecast to have cooled by 0.1% over May. This could set the stage for a rate hike pause as it indicates a fall in producer inflation, which would soon filter through to consumer inflation.

For the Pound (GBP), Wednesday sees the release of the latest UK GDP data. An expansion of 0.2% is forecast for April, which could bring cheer to GBP investors by indicating a recovery in the UK economy.

Furthermore, this may spark further rate hike bets as it would potentially indicate a resilient economy. As such, it could be argue that the UK economy would be able to handle further tightening as the BoE moves to control inflation.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts