Pound US Dollar (GBP/USD) Exchange Rate Bolstered by Signs of Cooler US Labour Market

December 29, 2022 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Bolstered by Signs of Cooler US Labour Market

Pound US Dollar (GBP/USD) Exchange Rate Rises amid Risk-On Impulse

The Pound US Dollar (GBP/USD) exchange rate climbed on Thursday. A risk-on impulse pushed the currency pair higher. Additionally, the latest US jobless claims figures prompted a mild pullback in bets of further interest rate hikes from the Federal Reserve. This also pulled the exchange rate lower.

At time of writing the GBP/USD exchange rate was at around $1.2060, which was up roughly 0.3% from that morning’s opening figures.

Pound (GBP) Climbs Against US Dollar, Slips Elsewhere as Strikes Continue

The Pound (GBP) edged lower against many of its rivals on Thursday amid a lack of data. A risk-on impulse helped Sterling to make gains against the US Dollar, however.

Continued strike action in the UK weighed on the Pound on Thursday. Talks between the UK government and public sector workers made no substantive progress, leading to the prospect of further weeks of industrial action.

The poor outlook for the UK’s economy in 2023 also kept pressure on the Pound. After a downward revision in third quarter GDP figures last week, experts are now forecasting a deeper recession that previously thought.

Larry Elliot, economics editor at the Guardian, said:

‘The question is not whether the economy is about to enter a recession but how deep and how long that recession will be.’

The Pound found support from optimistic reports for the UK’s retail sector. Data collected by analytics firm Springboard found a 40% increase in footfall over Boxing Day (26 Dec) and 27 December.

Diane Wehrle, Insights Director at Springboard, said:

‘The +36.6% increase in footfall from Boxing Day to 27 December suggests that consumers remain keen to shop for sale bargains post-Christmas. Increased inflation may act as an incentive for many shoppers who are keen to secure purchases ahead of any further price rises.’

US Dollar (USD) Edges Lower as Jobless Claims Prompt Fed Bet Pullback

The US Dollar slipped on Thursday. A risk-on impulse prompted losses in the safe-haven ‘Greenback’ as well as a dip in US Treasury bond yields.

Risk appetite remains fragile, however. Soaring Covid-19 case levels in China and the Russia-Ukraine war have kept investors wary of a global economic slowdown.

The latest US jobless claims figures also added to the US Dollar’s losses on Thursday. Jobless figures for the week ending 24 December rose by 9000 to a total of 225000. The increase represented a sharper than expected jump in claims, potentially pointing to cooler labour market.

This assessment led to a slight pullback in bets on a more aggressive tightening cycle from the Federal Reserve. The claims remained below the 270000 threshold seen by analysts as an indicator of a serious cooldown however, leading to limited losses for USD.

Thomas Simons, economist at Jefferies, said:

‘The labor market remains very tight. We expect it will soften eventually, but it is starting from a very significant position of strength and it will take a little while longer for the cracks to form.’

GBP/USD Exchange Rate Forecast: Will UK Strikes Dent Enthusiasm for the Pound?

The Pound is set to see no further data releases this week. Continued strike action in the UK could keep pressure on Sterling, with talks between business heads and union leaders seeing little significant progress.

The UK’s poor outlook could also continue to weigh on the Pound. Last week’s downward revision in third quarter GDP has prompted increased fears of a deeper recession in 2023.

For the US Dollar, the latest indicator of private sector health in the Chicago region on Friday could pull USD lower if it prints as forecast. December’s Chicago PMI is expected to indicate a contraction across all of the region’s private sectors.

The US Dollar could also be affected by any shifts in bets on further Fed rate hikes.

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