Pound US Dollar (GBP/USD) Exchange Rate Trades in Narrow Range on Mixed UK Stimuli

October 11, 2021 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Trades in Narrow Range on Mixed UK Stimuli

GBP/USD Exchange Rate Fluctuates on Mixed Trading Stimuli

The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range today as Sterling faces mixed trading impetus while the US Dollar (USD) lacks significant data.

At the time of writing, GBP/USD is trading at $1.3622, virtually unchanged from today’s opening levels.

Pound (GBP) Sentiment Divided over Energy Crisis, BoE Tailwinds

The Pound (GBP) is trading up against the majority of its peers this morning, although GBP sentiment is capped by ongoing fears over rising inflation and energy supplies.

Some industries have warned firms could be forced to shut down operations, as UK Business Secretary Kwasi Kwarteng denies financial support to struggling business leaders.

Asked about whether the government would ensure factories would not have to close if they could not pay for gas, Kwarteng said it was a commercial decision and ‘up to them’.

In addition, the UK’s supply chain crisis continues to hit UK firms: according to accountancy and business advisory firm BDO LLP, output growth across businesses slowed for the fifth month running in September, as supply chain disruption and staff shortages undermined productivity.

Despite these difficulties, the Pound has managed to find some support on optimistic comments from Bank of England (BoE) policymaker Michael Saunders. The MPC member gave a hawkish commentary following Chief Economist Huw Pill’s voicing of fears of a ‘more long-lasting’ inflation threat to the UK.

In an interview with the Telegraph, Saunders remarked that households should brace for the BoE to start raising interest rates ‘significantly earlier’ than previously thought, confirming that financial markets were right to bet on faster increases as the Consumer Prices Index heads above 4pc.

US Dollar (USD) Trades Mixed as Market Mood Fluctuates

The US Dollar (USD) is trading in a mixed range against its peers: potential for a risk-on mood is dented by downbeat developments regarding China’s real-estate sector, as well as global energy concerns and poor US jobs data.

Chinese firm Evergrande, which missed two bond-payment deadlines last month, is expected to miss further payments at midnight New York Time on Monday (05:00 BST Tuesday): meanwhile, another developer, Modern Land (China), has asked for a three-month extension on debt repayments.

According to the South China Morning Post, Modern Land has pledged to ‘continuously reduce debts’ where possible, asking for an extension to its maturity period in order to improve its ‘liquidity and cash-flow management and to avoid any potential payment default’.

The Hong Kong-listed company said that both its chairman and its president, Zhang Peng, had agreed to provide about 800 million yuan (US$124 million) in shareholder loans, with the expectation that they would be completed in two to three months.

Also weighing upon ‘Greenback’ sentiment is last Friday’s nonfarm payroll data, which reported a significant drop in job gains. The US economy expected to add 500K new jobs, but instead gained a meagre 194K.

According to ING, labour supply issues are the main reason for such sluggish employment growth. The National Federation of Independent Business survey showed record highs for companies with vacancies they can’t fill, leading to raised compensation rates – another inflationary pressure on the US economy.

GBP/USD Exchange Rate Forecast: Further Jobs Data to Drive Movement?

Looking ahead, jobs data for both the UK and the US is likely to be the most immediate driver of movement in the Pound US Dollar exchange rate tomorrow. UK data is expected to reveal a marginal drop in unemployment, with 243K jobs gained in the month of July.

Meanwhile, JOLTs job openings in the US are set to demonstrate 10.925m new vacancies for the month of August, potentially strengthening USD trading sentiment.

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