Pound US Dollar Exchange Rate News: GBP/USD Plunged as UK House Prices Tumble for Fourth Straight Month

Modified: Friday, 6 January 2023 13:05 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Plunged as UK House Prices Tumble for Fourth Straight Month

Pound (GBP) Undermined by Cooling Housing Market

The Pound (GBP) failed to muster much strength on Friday as the latest housing price data revealed a fourth consecutive month of falling prices. Surging interest rates and the cost-of-living crisis continue to sap demand and is slowing the market considerably.

Following on from a 2.4% fall in November, the latest 1.5% drop brought the annual growth rate down to 2%. However, 2022 was a turbulent year, as house prices rose drastically in the first half of the year before plateauing in the summer. The catastrophic mini-budget sent shockwaves throughout the market, and sent mortgage rates skyrocketing, weakening the housing market especially.

Looking ahead, Kim Kinnaird, Director of Halifax Mortgages, said:

‘As we enter 2023, the housing market will continue to be impacted by the wider economic environment and, as buyers and sellers remain cautious, we expect there will be a reduction in both supply and demand overall, with house prices forecast to fall around 8% over the course of the year.’

Meanwhile, weighing further on Sterling is troubling news of construction activity falling at its sharpest rate since the height of the Covid pandemic. Much like the housing market, the building sector has been hit hard by soaring interest rates. Both activity and new orders declined and saw the construction PMI fall to 48.8 from 50.4 in November. Dr John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, commented:

‘The construction sector was stuck in the mud in December with the steepest fall in activity since the beginning of the pandemic in May 2020 and a similarly fast drop in pipelines of new work.

‘House building saw a notable change of direction, with a mix of higher inflation for raw materials and transportation and the squeeze on affordability rates for mortgages resulting in fewer house sales.’

US Dollar (USD) Supported by an Upbeat Labour Market

Meanwhile, the US Dollar (USD) prolonged their new year celebrations and remained propped up by a resilient labour market.

A strong flurry of employment data from Thursday allowed investors to take solace in the anticipation of further Federal Reserve rate hikes. The ADP released monthly employment change figures which saw private sector employment rise by 235,000 against an expected 150,000.

With crucial labour market data due to be released late on Friday, if data prints to forecast, or exceeds them again, the ‘Greenback’ could soar higher. A continued resilient labour market could bolster rate hikes from the Fed, as the central bank views a strong labour market are able to shoulder the inflationary pressures.

GBP/USD Exchange Rate Forecast: Employment Data to Bolster the Greenback?

Looking ahead, the Pound US Dollar exchange rate could see further daylight between the pairing when both non-farm payrolls and the unemployment rate are released. Expectations of a rise of 200,000 in non-farm payrolls, as well as an unchanged 3.7% unemployment rate could lift the US Dollar.

Meanwhile, Sterling investors haven’t got much to cheer about as a lack of economic data will leave the Pound exposed to a myriad of domestic headwinds. Relentless industrial action and the cost-of-living crisis could keep a firm lid on Sterling.

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TAGS: Pound Dollar Forecasts