Pound US Dollar (GBP/USD) Exchange Rate Rallies amid Soaring UK Bond Yields
The Pound US Dollar (GBP/USD) exchange rate is rising this morning, following news that 30-year UK government bond yields have hit a 25-year high.
At the time of writing, GBP/USD is trading at around US$1.2137, an increase of just under 0.5% from the morning’s opening rates.
Mixed Labour Data to Muddle USD?
Over today’s session, the US Dollar may experience volatile trade. The latest ADP employment change data is due to print imminently, and is forecast by economists to show a decrease in hiring within the private sector.
If this prints accurately, the ‘Greenback’ could struggle to attract support as it may indicate loosening within the US labour market. This would, in turn, lead to pared back interest rate hike bets.
This is followed by the latest ISM services PMI. Economists forecast this reading to edge lower, indicating slowdown during September’s activity.
Due to the importance of the service industry, a sign of slowdown could weigh heavily on USD rates and indicate a shift towards economic turbulence.
Looking ahead to Thursday, the US Dollar may gain some strength following the publication of the latest initial jobless claims. In the week ending September 30th, jobless claims are forecast to have edged higher, but remain within the usual boundaries.
If this indicates continued tightness in the US labour market, the ‘Greenback’ could strengthen amid a week filled with impactful labour data.
This is then followed by a speech from Federal Reserve official Loretta Mester. If she strikes a hawkish tone during her speech, USD rates could spike as investors move to bet on further tightening from the Fed.
GBP to Waver amid Lack of Data?
The Pound (GBP) has enjoyed modest support thus far today, following news that 30-year UK government bonds have hit their highest levels since 1998. The rise in yields has come on the back of continued falls in bond prices, as investors bet that interest rates will remain high for longer.
Additionally, continued analysis of the final services index print could bring further cushioning for Sterling. The significant upward revision indicated that the vital sector still contracted, but slowed significantly less than first thought.
Tomorrow, a lack of data is on the cards. Because of this, Sterling may be unable to consolidate its current strength against some of its peers.
Furthermore, it could be left vulnerable to shifts in risk appetite. As an increasingly risk-sensitive currency, a souring market mood could weigh heavily on GBP rates.