Pound US Dollar Exchange Rate News: GBP/USD Wavered on Softer-than-Expected UK Employment Data

Modified: Tuesday, 16 May 2023 15:05 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Wavered on Softer-than-Expected UK Employment Data

Pound (GBP) Undermined by Cooling Labour Market

The Pound (GBP) struggled for a clear direction on Tuesday in the wake of the latest employment data for the UK. The Office for National Statistics (ONS) revealed that unemployment unexpectedly rose, and payroll numbers slipped.

Wage growth also surprised to the downside as pay continues to lag inflation, a slower-than-expected acceleration but still pointing to falling real wages. Meanwhile, job vacancies continued their decline, as the ONS pointed out:

‘Vacancies fell on the quarter for the 10th consecutive period and reflect uncertainty across industries, as survey respondents continue to cite economic pressures as a factor in holding back on recruitment.’

The number of workers also declined for the first time in two years, with 136,000 workers leaving the workforce, further highlighting a cooling labour market. Unemployment ticked higher than forecasted to 3.9%, against an expected unchanged 3.8%. Darren Morgan, ONS Director of Economic Statistics, said of the latest data:

‘Employment and unemployment both rose again in the first three months of 2023, driven in particular by men. This means the number of those neither working nor looking for work continues to fall, although the number of people not working due to long-term sickness rose again, to a new record.’

US Dollar (USD) Under Pressure from Downbeat Retail Sales

Meanwhile, the US Dollar (USD) failed to find much demand despite a mixed market mood. Downbeat retail sales were compounded by uncertainty surrounding the debt ceiling debate.

With negotiations ongoing between President Biden and House Speaker Kevin McCarthy, USD investors are reluctant in making too many moves until the situation clears. Expectations of the debt limit increasing are yet to confirmed, until they are, the ‘Greenback’ could remain under pressure. Francesco Pesole, FX Strategist at ING, said of the situation:

‘While Biden expressed some optimism during the weekend, McCarthy said yesterday that the two sides were still far apart after staff-level talks. He also said that a deal should probably be reached by the end of this week to have a realistic timeline to pass it in both houses.’

Elsewhere, retail sales printed worse than expected, pressuring the US Dollar even further. Against expectations of a 0.7% increase, sales in April only grew by 0.4%. However, a hawkish speech from Federal Reserve President of Richmond Thomas Barkin, sees further interest rate hikes if necessary. He added:

‘If inflation persists, or God forbid accelerates, there’s no barrier in my mind to further increases in rates.

‘It is not obvious to me that there is a financial stability challenge of having a higher rate path… I don’t see the urgency of making a different decision because of financial stability risks.’

GBP/USD Exchange Rate Forecast: Fed Speeches to Boost the US Dollar?

Looking ahead, the Pound US Dollar exchange rate could see further movement with a series of Fed speeches on Tuesday. Despite concerns over the debt ceiling, and muted growth in retail sales, a hawkish tilt from policymakers could lift the ‘Greenback’ on elevated rate hike expectations.

Meanwhile, GBP investors will be looking towards a speech from BoE Governor Andrew Bailey on Wednesday. If he was to appear dovish once more, Sterling could slip, especially as the labour market appears to be finally cooling.

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TAGS: Pound Dollar Forecasts