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Pound to US Dollar (GBP/USD) Exchange Rate Steady as US Jobless Claims Rise Above Forecasts

June 4, 2020 - Written by John Cameron

GBP/USD Exchange Rate Rangebound on ‘Unprecedented US Jobs Data

The Pound to US Dollar (GBP/USD) exchange rate held steady today, with the pairing currently trading around $1.25.

The US Dollar (USD) has suffered from today’s release of the US initial jobless claims figures for May, which came in at a worse-than-expected 1,877 thousand, despite forecasts of 1,800 thousand. However, this was better than April’s 2,126 thousand.

Jason Reed, professor of finance at the University of Notre Dame’s Mendoza College of Business, commented on the data, saying ‘this is unprecedented. The figures are so high that it’s hard to grasp the reality.’

Morgan Stanley said in a note:

‘In reality, the shadow unemployment rate, which includes people absent from work for other reasons, is much higher.’

Furthermore, as the US is ravaged by protests following the death of George Floyd, investors have become more wary of the ‘Greenback’, which is suffering from a sell-off in favour of riskier assets.

However, escalating US-China trade tensions have provided some uplift for the safe-haven ‘Greenback’.

Pound (GBP) Steady as UK Construction PMI Undershoots Forecasts

The Pound (GBP) held steady against the ‘Greenback’ following today’s release of the UK’s construction PMI, which edged higher from April’s nadir of 8.2 to 28.9. However, with the figure remaining deep in contraction territory, this failed to buoy GBP.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, explains:

‘Spending was slashed as clients continued to stonewall building firms and put new projects on hold. With furloughed staff across the supply chain, companies saw their capacity leak away and the construction sector now faces the most challenging environment for generations.’

Later today, we will see the release of the flash GfK consumer confidence survey for May. Any signs of deterioration in consumer morale could further weaken Sterling.

Meanwhile, former chancellors, including George Osborne and Philip Hammond, have warned that the UK could be facing levels of unemployment not seen since the 1980s.

Mr Osbourne warned:

‘Government needs to be planning. Let’s just assume things are going to be worse – it’s better that it’s good and well – but don’t leave it too late because it does take a long time to put these things in place.’

As a result, Sterling traders have become increasingly concerned for Britain’s economic performance in the second quarter.

GBP/USD Forecast: Could Safe-Haven Demand Buoy the ‘Greenback’?

US Dollar (USD) investors will be looking ahead to tomorrow’s release of the US nonfarm payrolls figures or May. However, if these continue to deteriorate, we could see the ‘Greenback’ suffer as America’s economic outlook continues to darken.

Tomorrow will also see the release of the US unemployment rate report for May. If this confirms consensus and rises to 19.8%, the US Dollar could suffer.

The GBP/USD exchange rate will remain sensitive to global risk sentiment this week. Any further signs of US-China trade tensions escalating could buoy the US Dollar as safe-haven demand returns.

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