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GBP to USD Exchange Rate Benefits from UK Job Market Report and Lasting Risk-Sentiment

February 19, 2019 - Written by James Fuller

Mixed UK data and Brexit uncertainties didn’t prevent the British Pound to US Dollar (GBP/USD) exchange rate from extending its recovery attempts today, as Pound investors reacted with optimism to some stats while the US Dollar’s strength was limited by optimism surrounding US-China trade developments.

Last week saw GBP/USD trending largely with a downside bias. The pair opened the week at the level of 1.2935 before tumbling and touching a monthly low of 1.2776 on Thursday. GBP/USD recovered at the end of the week and closed at the level of 1.2893.

This week so far, GBP/USD has recovered more of last week’s losses. On Tuesday, the Pound was able to put in a more solid advance and at the time of writing the pair was trending near the level of 1.2978.

The Pound found some support in Tuesday’s UK job market stats, while the US Dollar was mixed amid a lack of fresh strong US data as well as lasting risk-sentiment on US-China trade hopes.

GBP Exchange Rates Gain on Rising UK Pay Growth

At the beginning of the week, investors were hesitant to buy the Pound amid a lack of developments regarding Brexit, as well as concerns that fractures in the UK Labour Party may deepen or spark divisions in other parties as well.

Despite lasting uncertainties on how the Brexit process will unfold and signs of further divisions in UK political parties though, the Pound was able to sustain some gains versus a weaker US Dollar on Tuesday.

This was due partially to some solid UK job market results published on Tuesday morning. The stats showed a stronger than expected number of new jobs being made, and average earnings improved as expected.

In fact, the previous average earnings excluding bonuses print was revised higher, from 3.3% to 3.4%.

This marked UK pay growth hitting its best level in ten years, though the figure including bonuses was a little lower than expected.

The strong stats did have a downside to them, however. Analysts pointed out that this strong performance showed resilience, but was unlikely to continue. According to Tom Hadley, Director of Policy at the Recruitment and Employment Confederation:

‘There is a real fear, as we are seeing in the UK manufacturing industry, that we will see lower growth and fewer opportunities in the future.’

USD Exchange Rate Losses Limited Ahead of Federal Reserve Minutes

The Pound was able to climb versus a slightly weaker US Dollar today, but investors were still hesitant to sell the US Dollar too much ahead of key news expected in the coming sessions.

The US Dollar’s primary reason for weakness today was lasting market risk-sentiment, as US-China trade negotiations resumed and investors are hopeful that a resolution between the two nations could soon be reached.

Hopes that the US and China could soon reach an agreement on long-standing trade tensions made investors more willing to take risks again, which meant investors were less eager to hold onto safe haven currencies like the US Dollar.

However, while the US Dollar has weakened on risk-sentiment investors are hesitant to sell the currency too much ahead of Wednesday’s major news – the Federal Reserve’s latest meeting minutes report.

According to Stephen Gallo, European Head of FX at BMO Capital Markets:

‘In a very general sense, nothing has changed relative to yesterday’s muted session in the FX space. Investors are preparing for higher-impact events later this week as they attempt to judge the tone in the ongoing US-China and US-EU trade discussions.’

GBP/USD Exchange Rate Forecast: Federal Reserve Meeting Minutes in Focus

The US Dollar is likely to keep firming as markets anticipate Wednesday’s session, when the Federal Reserve is due to publish its latest meeting minutes report.

As US data has been a little more mixed in recent weeks, if the Fed takes a more cautious tone than expected the US Dollar could be in for weak performance.

On the other hand though, if the Fed minutes are more hawkish the US Dollar could see stronger demand.

Wednesday will also see the publication of Britain’s February industrial trends orders report from the Confederation of British Industry (CBI).

The data is not expected to be particularly influential however, and Pound investors will remain focused on potential Brexit developments.

Pound to US Dollar exchange rate traders may also react to upcoming developments in US-China trade negotiations.
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