GBP/USD could extend its three-month high if stronger UK jobs data boosts BoE rate expectations, while softer US employment keeps the US Dollar under pressure.
The Pound US Dollar (GBP/USD) exchange rate edged higher at the start of this week, striking its best levels since mid-May amid a further dovish repricing of Federal Reserve interest rate expectations.
At the time of writing, GBP/USD was trading at around $1.3556. Up around 0.2% from Monday’s opening levels.
DAILY RECAP:
The US Dollar (USD) stumbled on Monday, reaching fresh multi-month lows as investors continued to unwind expectations for further Federal Reserve interest rate hikes.
A recent run of softer-than-expected US economic releases has increasingly challenged expectations the Fed will tighten monetary policy in the coming months, with the majority of investors no longer pricing in a September rate hike.
The latest setback came from Friday’s US retail sales figures, which revealed an unexpected 0.6% contraction in consumer spending during July, the first decline in retail sales for nine months.
The disappointing retail sales figures followed a series of other lacklustre releases, including a much weaker-than-expected July payrolls report and relatively soft inflation data, that have also weakened Fed bets in recent weeks.
While able to tick higher against the US Dollar, the Pound (GBP) was left to trade in a narrow range against the bulk of its other peers on Monday, with GBP investors reluctant to alter their positions in the currency ahead of several UK economic releases.
Trading is set to pick up considerably as the week unfolds, starting with official labour market statistics and inflation figures in the first half of the session, before attention shifts to retail sales and flash PMI numbers towards the tail end of the week.
Investors will pay particularly close attention to the employment and CPI reports, which are likely to steer the Bank of England’s (BoE) interest rate outlook heading into autumn.
Should the data reveal enduring economic resilience and persistent underlying price pressures, renewed expectations of BoE policy tightening could give Sterling a meaningful lift.
Near-Term GBP/USD Forecast: Will a Stronger UK Jobs Market Boost Sterling?
Turning to Tuesday’s session, the UK’s data glut begins with the publication of the UK’s latest jobs report.
The data could extend the upside in the Pound to US Dollar (GBP/USD) exchange rate as consensus forecasts predict an acceleration in employment growth will have pulled unemployment lower in June.
That said, any gains for Sterling could prove limited if an accompanying moderation in wage growth dampens market appetite for further central bank rate increases.
Meanwhile, the US Dollar may face further headwinds if the latest ADP employment data, reports that US employment growth continued to slow through the last week of July.
Our currency coverage draws on live market data, official economic releases and published bank research.