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Pound US Dollar Exchange Rate News: GBP/USD Nosedives as No-Deal Brexit Fears Rock Sterling Sentiment

July 16, 2019 - Written by John Cameron

Pound (GBP) Slumps as Strong Wage Growth Fails to Lift Brexit Malaise

The Pound (GBP) fell sharply against the US Dollar (USD) on Tuesday, with the pairing plummeting roughly half a cent as some upbeat UK employment stats failed to offset the heavily selling bias currently dragging on Sterling.

In regards to the employment data, the Office for National Statistics (ONS) reported that the UK unemployment rate held at a 44-year low of 3.8% in May, in spite of a larger-than-expect rise in the number of claimants.

The accompanying earning’s figures printed even stronger, with the ONS reporting that wage growth (excluding bonuses) rocketed up from 3.4% to 3.6% over the same period, sailing past expectations of a more modest rise to 3.5% and reaching their highest levels in over a decade.

However, this appears not have been enough to reverse the negative bias currently surrounding the Pound, as persistent Brexit uncertainties and expectations of monetary easing from the Bank of England (BoE) continued to cloud sentiment.

Also helping to cap any upside in Sterling on Tuesday were suggestions the headline figure may be masking some underlying weakness in the UK’s labour market, namely the surge in part-term self-employed workers.

Geraint Johnes, Professor of Economics at Lancaster University Management School, said:

‘Following the pattern of recent months, the labour market statistics exhibit a shift towards less secure forms of employment. While the overall employment level continued to rise in the three months to May of this year, the composition of this increase is a source of some concern.

‘The number of full-time employees fell by some 77000, and the number of part-time employees also fell slightly. There was a modest increase in the number of full-time self-employed workers, but the main source of employment growth has been part-time self-employment.

‘This grew by a massive 104,000 over the quarter. While many jobs of this kind offer workers the flexibility that they might want, this may come at a cost in terms of insecurity. As parts of the traditional engine room struggle in the current economic climate, workers may increasingly be turning to the gig economy.’

US Dollar (USD) Exchange Rates Buoyed by Robust Retail Sales

Meanwhile, the US Dollar (USD) was able to extend its gains against the Pound (GBP) on Tuesday afternoon as markets reacted to the latest US retail sales figures.

According to data published by the US Census Bureau, domestic sales grew 0.4% in June, beating expectations that they would have slowed to 0.1%.

Whilst the previous month’s figures were revised down from 0.5% to 0.4%, somewhat taking some of the shine off of the figures, they were still enough to drive USD exchange rates higher as they prompted a modest lift in US bond yields.

GBP/USD Exchange Rate Forecast: Robust Inflation Unlikely to Offer Support to Sterling?

Looking ahead, the Pound US Dollar (GBP/USD) exchange rate may continue to struggle in the mid-week, following the publication of the UK’s latest CPI figures.

Whilst economists forecast that inflation in the UK will have remained robust last month, printing at 2% and remaining within the BoE’s target range, analysts suggest the reading is unlikely to offer much support to Sterling tomorrow as it is unlikely to be enough to deter the bank from seeking to ease its monetary policy later this year.

In the meantime a speech by Federal Reserve Chairman Jerome Powell could inject some fresh impetus for movement in the US Dollar on Tuesday evening.

This may see the ‘Greenback’ move lower if Powell’s remarks add further fuel to Fed rate cut expectations, with any hints that we may see more than one rate cut this year.

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