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Pound US Dollar (GBP/USD) Exchange Rate Tumbles as US Wage Growth Smashes Expectations

February 2, 2018 - Written by John Cameron

Strong US Employment Figures Prompt Rally in USD Exchange Rates



The Pound US Dollar (GBP/USD) exchange rate fell by over 1% on Friday, tumbling as markets responded to an extremely upbeat run of US employment figures and near-stagnant activity in the UK’s construction sector.

On the US Dollar front, markets were very pleased to see 200,000 new US jobs added during the previous month, with a 2.9% increase in year-on-year average hourly earnings (up from previous 2.7% and forecast 2.5%) and overall unemployment readings that held steady at a 17 year low of 4.1%.

Dennis de Jong, Managing Director at UFX shared his thoughts on the readings:

‘Buoyant domestic and global demand, particularly for the manufacturing sector, appear the derivers in higher-than-anticipated numbers, and Trump’s fiscal stimulus package is clearly a shot in the arm for economic growth. (…) with the economy close to full employment, increased pressure on wages looks an inevitable consequence. So higher inflation is surely on the cards, with taller interest rates set to arrive over the coming months’.

Beyond this, the University of Michigan consumer expectations reading for January posted a score of 86.3, up from the previous period’s 84.3 and the forecast of 84.8, whilst month-on-month factory orders climbed by 1.7%, beating the forecast of 1.5% but remaining consistent with the previous period.

This wealth of upbeat domestic data from the US boded extremely well for the US Dollar, with the rise in US wage growth in particular liable to prove the missing link in stricter monetary policy plans at the Federal Reserve.

Pound (GBP) Exchange Rates Tumble as UK Construction Almost Stalls



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Pound (GBP) exchange rates took a beating on Friday as markets responded to a disappointing start to the year for the UK’s construction sector.

Markit’s January UK construction PMI dropped dangerously close to the 50-point mark that separates contraction from expansion by printing at 50.2, down from the previous month’s 52.2 and the market forecast of 52.8.

This proved the weakest pace of expansion within the construction sector in four months, with outright contraction in house building and a drop in new orders fostering concerns within the markets.

In slightly better news, however, many firms surveyed expressed confidence towards future growth, asserting that they anticipate an increase in new projects as the year progresses.

Nonetheless, this news proved insufficient in bolstering the Pound, with UK data stuck playing second-fiddle to the wealth of upbeat US ecostats.

GBP/USD Exchange Rate Forecast: BoE Rate Hike Possibilities – What can we Expect?



The Pound US Dollar (GBP/USD) exchange rate could gain some ground in the near-term, depending on the outcome of upcoming Bank of England (BoE) monetary policy decisions.

Whilst markets currently do not expect a rate hike to occur in the February or March meetings, market hopes for hawkish action has steadily grown in recent weeks on the back of the financial services company UBS predicting a rate hike in May.

The UBS has argued that the BoE could move for an interest rate hike if a transitionary deal is successfully struck.

UBS Strategist John Wraith stated:

‘While we still expect the Brexit process to generate strengthening headwinds for the UK economy for a considerable time, the stronger-than-expected outturn for fourth quarter gross domestic product (GDP) and the better momentum the economy starts 2018 with as a result could give the MPC a window of opportunity to raise the bank rate by the middle of the year’.

Beyond a rate hike, markets are now also anticipating the bank’s growth projections to shift higher, with BoE Governor Mark Carney having recently stated as much for his 2019 projections:

‘I would expect that in 2019 we will see a pick-up in this economy all things being equal – strong global growth, greater uncertainty’.

This shift in projections could occur as early as the February meeting – an event liable to help bolster the Pound.

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