Pound US Dollar X-Rate Rangebound on UK Jobs Data

October 16, 2024 - Written by John Cameron

STORY LINK Pound US Dollar X-Rate Rangebound on UK Jobs Data

The Pound to US Dollar (GBP/USD) exchange rate was mostly unchanged on Tuesday following the release of the UK’s latest employment data.

At the time of writing, GBP/USD was trading around $1.3077. Virtually unmoved from Tuesday’s opening levels.

The Pound (GBP) traded sideways on Tuesday as investors reacted to the latest UK jobs report.

The Office for National Statistics (ONS) reported that UK unemployment fell unexpectedly in August, dropping from 4.1% to 4%, the lowest level since January.

However, these surprisingly positive figures were tempered by a slowdown in wage growth, with average earnings (excluding bonuses) slipping from 5.1% to 4.9%.

With the Bank of England (BoE) closely monitoring the relationship between wages and inflation, the weaker earnings figures fuelled expectations that the BoE might cut interest rates in November.

Monica George Michail, associate economist at NIESR, commented:

‘Easing wage pressures are supported by a notable fall in services sector pay growth, which recorded 3.6 per cent, down from an average of 5.6 per cent in the first half of this year. This is positive news for inflation and might provide the Bank of England with increased confidence regarding interest rate cuts.’

The US Dollar (USD) traded in a tight range on Tuesday amid mixed trading stimuli.

Underpinning the ‘Greenback’ was continued safe-haven demand, stemming from ongoing geopolitical tensions and market disappointment over China's lack of significant fiscal stimulus measures.

However, USD demand was simultaneously tempered by growing expectations of another interest rate cut from the Federal Reserve next month.

GBP/USD Exchange Rate Outlook: Falling UK Inflation to Weigh on Sterling?

Looking ahead, the Pound to US Dollar exchange rate may weaken on Wednesday with the release of the UK’s latest inflation data.

Economists forecast that September’s consumer price index will show inflation eased from 2.1% to 1.9%, marking the first time it has dipped below the BoE’s 2% target since April 2021.

If inflation cools as expected, it could increase the likelihood of consecutive rate cuts from the BoE in November and December, potentially exerting pressure on the Pound.

Meanwhile, with little significant US economic data due on Wednesday, the US Dollar’s movement may be driven by broader market risk sentiment. If investor caution persists, the USD could gain ground.

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TAGS: Pound Dollar Forecasts