Pound US Dollar Exchange Rate News: GBP/USD Plunged amid Strengthening US Jobs Market

February 3, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Plunged amid Strengthening US Jobs Market

US Dollar (USD) Buoyed by Strong Labour Market Data

The US Dollar (USD) enjoyed a strong recovery from earlier in the day on Friday as the latest labour market data printed. Non-farm payrolls exceeded forecasts and followed the strong increase from the previous month as the US economy added more jobs than expected. Meanwhile, the unemployment rate ticked lower.

A resilient and strong labour market could enable the Federal Reserve to continue their aggressive tightening cycle even further if needed. Against predictions of 185,000 new jobs, the economy added 517,000, 200,000 more than last months. It was the biggest growth since July, and far above the average monthly gain of 401,000 in 2022.

Elsewhere, the unemployment fell to the lowest level since 1969 and far below market expectations of 3.6%. The latest labour market data only fuels the optimism surrounding a strong labour market, showing that the Fed’s relentless aggression might not need to slow down just yet.

Moreover, the cautious market mood could be playing into the hands of the ‘Greenback. Safe-haven flows could keep the US Dollar moderately supported as investors continue to digest the labour market data.

Pound (GBP) Undermined by Dovish BoE Outlook

The Pound (GBP) climbed moderately against the US Dollar and recovered lost ground in the wake of the Bank of England’s (BoE) interest rate decision.

A dovish tone was followed by the BoE statement and a press conference from BoE Governor Andrew Bailey, that sent the Sterling plummeting. The possibility of not only turning to smaller rate increases, but a pausing of the tightening cycle weighed on investors.

Supporting Sterling, however, is the increased optimism surrounding the looming recession. Contrary to previous fears, the BoE expects a much milder and shallower recession for the UK. With the cost-of-living crisis weighing heavily, the prospect of a recovery in the flagging economy appears to offset the implied reduced rate hikes.

However, adding to the downward pressures, final services PMI data confirmed the lowest figure in two years. Both businesses and consumers appeared to have cut back on spending as the PMI fell to 48.7 in January, the worst since January 2021. The fastest decline in 24 months also pointed to the fourth consecutive month of declining activity. Tim Moore, Economics Director at S&P Global, commented on the survey:

‘The latest survey illustrates that the UK economy risks falling into recession as labour shortages, industrial disputes and higher interest rates take their toll on activity.

‘However, the downturn in service sector output remained relatively shallow at the start of 2023. Encouragingly, new order volumes moved closer to stabilisation and export sales picked up in January, which contributed to a marginal upturn in overall employment numbers.’

GBP/USD Exchange Rate Forecast: US Non-Manufacturing PMI to Lift the Greenback?

Looking ahead, the Pound US Dollar exchange rate could see further movement before the week is done. An expected climb in the ISM non-manufacturing PMI for January could bolster the US Dollar. A welcome return to the expansion territory after last month’s blip could improve investors’ moods.

Meanwhile, the Pound will head into the weekend trading on market sentiment and the continuing analysis of the central bank’s movements going forward.

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TAGS: Pound Dollar Forecasts