Pound Dollar Exchange Rate Undermined by Risk-Off Sentiment

September 9, 2024 - Written by John Cameron

STORY LINK Pound Dollar Exchange Rate Undermined by Risk-Off Sentiment

The Pound US Dollar exchange rate ticked lower on Monday as a souring market mood weighed on the pair.

At the time of writing, GBP/USD was trading at approximately $1.3081, down roughly 0.3% from the start of Monday’s session.

The US Dollar (USD) gained traction against the majority of its peers on Monday as investors turned to safer assets amid a risk-off sentiment.

This shift boosted the ‘Greenback’ on Monday leading to broad gains against most major currencies.

As a safe-haven currency, the USD benefited from these cautious trading conditions, alongside a slight increase in US Treasury yields.

The Pound (GBP) lost ground against the majority of its peers on Monday, driven by disappointing employment updates from KPMG and the UK’s Recruitment and Employment Confederation (REC).

This saw investors remain wary ahead of the UK’s latest unemployment and wage growth data, which is due out on Tuesday.

A report on UK jobs released Monday morning pointed to a slowdown in employment, dampening sentiment for the Pound.

The data came in at the lowest level since March which led to an uptick Bank of England (BoE) interest rate cut bets, stymieing Sterling sentiment in the process.

Jon Holt, Chief Executive and Senior Partner of KPMG in the UK said:
‘Recent Government warnings that the UK’s economy may weaken further before improving add to the overall sense of uncertainty, affecting recruitment plans. The news that while salaries rose last month it was at the weakest rate since March could help make the case for more rate cuts when the [Bank of England’s] Monetary Policy Committee meets to decide the future path of interest rates.’

Looking ahead, the publication of the UK's latest labour report on Tuesday is expected to be the key driver of movement for the Pound to US Dollar exchange rate.

UK unemployment is forecast to edge down from 4.2% to 4.1% in July, while wage growth (excluding bonuses) is predicted to fall from 5.4% to 4.9%.

A decline in wage growth could heighten expectations for a BoE rate cut, potentially weakening the Pound further.

As for the US Dollar, a lack of domestic data on Tuesday may keep the American currency influenced by risk sentiment.

If risk-averse trade continues, the ‘Greenback’ could maintain its upward trend as investors seek safer assets.

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TAGS: Pound Dollar Forecasts