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UK Jobs Data Shows Slowing Wage Growth, GBP USD Exchange Rate Falls

February 15, 2017 - Written by Toni Johnson

The British Pound to US Dollar exchange rate made modest gains during Thursday’s European session, despite this week’s impressive US data.

As ‘Greenback’ traders focused on stock markets and anticipate US President Trump’s upcoming tax reform plans, the US currency remained jittery. Sterling was bought from its lows on Thursday amid a lack of fresh UK data, giving the currency some breathing room.

[Previously updated 16/02/2017]

Confidence in the US Dollar fell back on Thursday in spite of the hawkish message from Fed Chair Janet Yellen, with a general mood of risk appetite limiting the appeal of the ‘Greenback’.

As disappointment over the weaker-than-expected UK earnings figures began to fade, meanwhile, the Pound to US Dollar exchange rate rallies strongly to trend higher in the region of 1.2505.

[Previously updated 15/02/2017]

The Pound to US Dollar exchange rate fell from its weekly highs on Tuesday as UK inflation failed to meet expectations and Federal Reserve rate hike bets increased. The pair continued falling on Wednesday due to a mixed UK jobs report.

GBP/USD began the week trending at the level of 1.2487. After hitting a high of 1.2546 on Tuesday, the pair plunged and as of Wednesday morning was trending near a weekly low of 1.2426.

GBP Undermined Again by Slowing UK Wage Growth

This week’s British data has been unable to support the Pound and has left the British currency weaker against most major rivals.

Wednesday’s European session saw the publication of Britain’s latest employment reports. January’s jobless claims report was better-than-expected, with claims falling by -42.4k and the jobless claim rate unexpectedly improving to 2.1%.

However, the employment report for the three months through December disappointed investors despite a solid employment change of 37k.

News that UK wage growth had slowed to 2.6% both including and not-including bonuses instead of remaining at 2.8% and 2.7% respectively worsened concerns that UK citizens may face a financial squeeze in the coming year – with UK inflation also surging.

This will likely lead to a drop in activity in consumer sectors like the services sector – which would slow UK growth considerably.

USD Benefits from Increase in Federal Reserve Rate Hike Bets

After seeing mixed movement earlier in the week, the US Dollar saw a solid increase in strength during Tuesday’s American session as Federal Reserve Chairwoman Janet Yellen made a speech to US Congress.

Yellen stated it would be ‘unwise’ to wait too long before hiking US interest rates, citing the current healthy momentum behind economic growth and inflation key reasons to hike sooner rather than later.

While bets of a March interest rate adjustment are still only around 20%, hopes for a hike were raised and investors became optimistic about Yellen’s tone.

Expectations in markets that US President Trump would soon be announcing new tax reforms have also kept the US Dollar strong although Trump uncertainty has made the ‘Greenback’ more jittery than typical in recent weeks.

GBP/USD Forecast: US Consumer Prices in Focus

Investors will be spending most of Wednesday afternoon reacting to January’s US Consumer Price Index (CPI). After Fed Chairwoman Yellen took a hawkish tone in her Tuesday speech, a strong US inflation report could be just what the US Dollar needs to lock in further gains.

However the opposite is also true. If US inflation comes in below expectations and indicates that US price pressures are not as strong as believed, the US Dollar could plummet and Fed rate hike bets could also fall.
Yellen will also be holding another key speech during Wednesday’s American session giving this week a rare double whammy of Yellen.

As a result, the US Dollar is likely to take point in GBP/USD movement on Wednesday.

A lack of fresh UK data on Thursday means traders will continue to react to US news, with US January housing figures also coming in.

The Pound will see more inspired movement at the end of the week, as January’s UK retail sales results will be published on Friday morning.
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