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GBP/USD News: Pound US Dollar Exchange Rate Firms on Strong UK Employment Data

October 12, 2021 - Written by John Cameron

GBP/USD Climbs on Positive UK Jobs Data

The Pound US Dollar (GBP/USD) exchange rate has firmed today, after initially dipping at the open of the session, following the UK’s strong jobs data.

Meanwhile, a recent absence of any meaningful US data is leaving the US Dollar (USD) open to losses.

Pound (GBP) Strengthens on Strong Employment Reports

The Pound (GBP) has gained ground against the US Dollar so far today after the latest UK employment data indicated a continued post-pandemic recovery in the country’s labour market.

From the period of June to August this year, UK unemployment fell to 4.5% – down from 4.6% in the period from May to July.

Year-on-year, average earnings including bonuses increased by 7.2%, just above market expectations of a 7% rise.

Looking at last month, the number of payroll employees surged by 207,000, exceeding pre-pandemic levels to hit a record high of 29.2 million. Meanwhile, jobs vacancies rose to 1.1 million, another all-time high.

The reports show a continued and robust recovery in the UK labour market as the country rebounds from the effects of the pandemic, with both hiring demand and employment holding strong.

However, there are some caveats and words of warning from commentators, which may be limiting GBP’s upside.

The latest employment data comes from before the end of the government’s furlough scheme, which some worry may cause a rise in unemployment as companies make redundancies.

Rob Clarry, an economist at PwC, commented:

‘[W]ith the furlough scheme winding down at the end of September, the labour market now faces its sternest test since the start of the pandemic. We expect to see a period of adjustment as workers made unemployed either enter sectors experiencing high demand for labour, such as transport and construction, or retrain to pursue new vocations.’

In addition, there are concerns that the high number of vacancies indicates a tighter labour market, which may be stifling the UK’s economic recovery. The UK currently has the lowest number of unemployed people per vacancy on record, at just 1.45 (compared to 4.1 during the country’s first lockdown last year).

Tony Wilson, Director at the Institute for Employment Studies, said:

‘These shortages are holding back our economic recovery, and won’t fix themselves by just exhorting firms to pay people more. Instead we need to do far better at helping some of the six million people who are outside the labour market because of ill health, caring or full-time study to get back into work.’

These concerns could be limiting the Pound’s upside against the US Dollar today, but the strong jobs data is certainly providing Sterling with a lift.

US Dollar (USD) Muted amid Lack of Data

Meanwhile, the US Dollar has struggled to find a clear directional bias today, despite a relatively risk-off market mood, amid a lack of US economic data.

Equity markets are down today, as many factors contribute to a fairly cautious sentiment among investors. Slowing global economic growth, eye-watering energy prices, inflation fears, supply chain disruption, and the prospect of central banks tightening monetary policy are all rattling markets today, yet the safe-haven ‘Greenback’ has been unable to capitalise on the mood so far.

One factor keeping the ‘Greenback’ muted is the absence of economic data, which is leaving USD investors without much incentive.

The quietness on the US calendar follows yesterday’s market closure for Columbus Day, which may also be adding to the Dollar’s lethargy today.

The ‘Greenback’ may also still be facing lingering headwinds following last week’s dire non-farm payrolls report. September’s data showed that the US economy added just 194,000 jobs, versus the 500,000 forecast, leading some analysts to question whether it may delay the Federal Reserve’s plans to tighten monetary policy.

GBP/USD Exchange Rate Forecast: US Job Openings in Focus

Looking ahead, the US JOLTs job openings data this afternoon could cause some movement in GBP/USD.

Vacancies are expected to hold near record highs at around 10.925 million. While this would indicate that hiring demand remains high, it could also cause some concern among USD investors.

Following last week’s payroll miss, near record-high vacancies may indicate that the US has a skills shortage, similar to the UK’s current labour gap.

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