Pound Sterling US Dollar (GBP/USD) Exchange Rate Falls on ‘Unimaginable’ US Jobless Rate
UPDATE: The Pound Sterling US Dollar (GBP/USD) exchange rate edged lower this afternoon. This left the pairing flat, and trading at around $1.2331.
The Pound edged lower against the US Dollar as this morning’s rally was short-lived.
Commenting on this, Lee Hardman, MUFG currency strategist said:
‘The Pound staged a knee-jerk relief rally, as there had been some expectations that the BoE could extend quantitative easing.
‘But the BoE is likely to extend asset purchases, so that’s why there’s been only a short-term boost for the Pound today.’
Meanwhile, data revealed that millions of Americans sought unemployment benefits last week. This suggests that the layoffs spread from consumer-facing industries to other sectors of the economy.
Initial jobless claims rose to 3.169 million for the week that ended 2 May.
However, this was the fifth consecutive weekly decrease in applications, which offered markets some hope.
Commenting on this afternoon’s data, Joel Naroff, chief economist at Naroff Economics said:
‘The pace of new claims for unemployment is slowing, but remains at levels unimaginable just a few months ago.’
Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted as BoE Leaves Rates Unchanged
The Pound Sterling US Dollar (GBP/USD) exchange rate remained flat this morning after the Bank of England’s (BoE) decision. This left the pairing trading at around $1.2340.
Sterling remained muted against the Dollar after the BoE left rates unchanged, keeping them at an all-time low of 0.1%.
The bank also held off on further stimulus. However, two BoE policymakers voted in favour of increasing its bond-buying programme.
Commenting on this, multi-asset portfolio manager at Janus Henderson Investors, Oliver Blackbourn noted:
‘While the Bank of England did not change its monetary policy stance at today’s meeting, it is surely only a matter of time before they decide to. The 7-2 split on whether to increase asset purchases indicates a continued dovish bias from certain voting members.
‘With the Bank hoovering up gilts equivalent to those issued since the additional £200 billion in quantitative easing was announced, it will run out of firepower to support government spending within in months. Therefore, expectations will be high for an increase in the purchase target at the next meeting in mid-June.’
However, GBP was offered some support after the bank said it would be ready to take further action to help Britain’s economy which is set to face the largest economic slump in over 300 years.
The BoE also noted that the country’s GDP may decline by 14% this year. Although, they noted this would be ‘temporary’, and the pickup in the economy would be ‘relatively rapid’.
The bounce-back next year is estimated to be around 15%, and the BoE noted this would require significant monetary and fiscal stimulus.
Speaking today, BoE Governor Andrew Bailey said:
‘However the economic outlook evolves, the Bank will act as necessary to deliver the monetary and financial stability that are essential for long-term prosperity and meet the needs of the people of this country. This is our total and unwavering commitment.’
Improved Risk Sentiment Sends the Safe-Haven US Dollar (USD) Lower
The US Dollar remained flat against the Pound today as risk appetite was offered support following the release of upbeat Chinese data.
Chinese exports increased by 3.5% despite forecasts of a -15.7% drop.
The better-than-forecast Chinese export numbers sparked hopes China can rebound quickly and help global growth recover.
Meanwhile, on Wednesday reports revealed that private payrolls in the US plummeted by a record 20.2 million in April.
This left USD flat as it dampened risk appetite slightly ahead of this afternoon’s US jobless data.
According to Naroff Economics’ chief economist, Joel Naroff:
‘Even with the economy slowly starting to reopen, the number of unemployed should continue to rise sharply as governments, as well as businesses that have tried but not succeeded at holding the line, are now laying off workers.
‘The pace of new claims for unemployment is slowing, but remains at levels unimaginable just a few months ago.’
Pound US Dollar Outlook: Will Risk Appetite Slump?
Looking ahead to this afternoon, the US Dollar (USD) could edge higher against the Pound (GBP) following the release of US jobless claims.
If initial jobless claims reveal millions more Americas sought unemployment benefits last week despite many parts of the economy starting to re-open, risk appetite will slump. The disappointing data is likely to send traders flocking back to the safety of the ‘Greenback’.
Meanwhile, Sterling could suffer some losses following the release of GfK’s consumer confidence.
If consumer confidence plummets further than expected in May, as the coronavirus lockdown continues to weigh on sentiment, the Pound US Dollar (GBP/USD) exchange rate will slump.
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