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Pound US Dollar Forecast: GBP/USD Edges Higher on Dire US Payrolls Data

October 8, 2021 - Written by John Cameron

GBP/USD Exchange Strengthens Following Dire US Payrolls

The Pound US Dollar (GBP/USD) exchange rate finished the week on firm footing following much lower-than-expected US non farm payrolls data.

After the US jobs report printed, USD exchanges rates dipped as the data raised doubts whether the Federal Reserve would still tighten monetary policy this year.

The data has helped the GBP/USD exchange rate to hold recent gains and trades above $1.36 at 1.3620 at the time of writing.

Pound (GBP) Steady Following BoE Comments

The Pound (GBP) is holding its ground at the end of the week after making gains late in the session as the looming energy crisis and gas prices drive movement in Sterling.

After gas prices fell back from record highs midweek, the Pound edged higher as fears eased over the cost of energy.

Wholesale gas prices are creeping higher again today, but below Wednesday’s record high, with the uncertainty keeping a lid GBP exchange rates.

However, comments from the new Bank of England (BoE) chief economist Huw Pill have bolstered support for the Pound, allowing the currency to make modest gains.

Speaking to MPs on the UK Parliament’s Commons Treasury Committee, Pill warned of increasing inflation concerns that could persist next year, saying:
“That balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long lasting than originally anticipated.
“The magnitude and duration of the transient inflation spike is proving greater than expected.”

The chief economist’s hawkish tone suggested to some analysts that the BoE will tighten monetary policy sooner than expected.

The prospect of interest rate hikes larger and sooner than previously thought has underpinned support for Sterling at the end of the session.

US Dollar (USD) Dented as Payrolls Underwhelm

The US Dollar (USD) slipped in the immediate aftermath of the release of the lower-than-expected US non farm payrolls.

Forecasts had pointed to the US economy adding 500,000 jobs in September, but instead the reading was the lowest so far this year at 194,000.

The payrolls miss raised doubts whether the Federal Reserve would now alter its plans to taper its bond-buying programme, which many analysts expected to be announced in November.

The US Dollar has weakened towards the end of the week as market mood improved and weighed on the safe-haven ‘Greenback’.

Risk appetite increased after the US Senate passed a vote to extend the US debt ceiling, meaning the US government avoided the possibility of defaulting on debt payments.

Senators increased the limit by $480 billion to cover until early December, from the previous mid-October deadline.

The extension means the US avoided potentially damaging its credit rating and causing global financial turmoil.

Pound US Dollar Exchange Rate Forecast: Will the Fed Change Tapering Plans after Surprise Payrolls?

The GBP/USD exchange rate looks likely to remain sensitive to the ongoing threat of an energy crisis in the UK amid soaring wholesale prices of natural gas.

At the same time, UK employment data released early next week looks set to drive additional movement in the GBP/USD exchange rate.

With the UK unemployment rate expected to dip from 4.6% to 4.5% in August, the Pound could make gains on more signs that point to the UK making a strong economic recovery.

Combined with early reports that the end of the furlough scheme last month has had limited impact on unemployment, Sterling may receive solid support through midweek trade.

Meanwhile, after today’s non farm payrolls, investor reaction to the lower-than-expected job creation and forecast beating unemployment rate from 5.2% to 4.8%, as well as speculation on the whether the Federal Reserve will tighten monetary policy, will drive movement in USD.

September’s US inflation data published on Wednesday is forecast to show a 5.4% reading, up slightly on August, and may influence the Federal Reserve’s decision to taper its bond-buying programme and plans to raise interest rates.

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TAGS: American Dollar Forecasts Pound Dollar Forecasts

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