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Pound US Dollar (GBP/USD) Exchange Rate Slides as US Labour Market Suffers ‘Traumatic Blow’

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Pound Sterling US Dollar (GBP/USD) Exchange Rate Falls as Millions of Americans Continue to Suffer Job Losses

UPDATE: The Pound Sterling US Dollar (GBP/USD) exchange rate slumped by around -0.5% on Thursday afternoon. This left the pairing trading at around $1.2652.

Data revealed that US initial jobless claims fell once again last week to a seasonally adjusted 1.542 million.

However, risk appetite remained under pressure as layoffs in the world’s largest economy continued. Millions of Americans continued to lose their jobs due to the coronavirus crisis.

This suggested that it would take the labour market years to recover from the crisis despite businesses resuming hiring.

Commenting on this, Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York said:

‘The steady retreat in claims is a positive development, but the labor market has suffered a traumatic blow and a full recovery will be measured in years, not weeks or months.

‘The figures don’t capture the full extent of the blow dealt to workers during this unique crisis.’

Pound Sterling US Dollar (GBP/USD) Exchange Rate Slumps Following Fed Meeting

The Pound Sterling US Dollar (GBP/USD) exchange rate slumped by around -0.2% on Thursday morning. This left the pairing trading at around $1.2687.

The US Dollar regained its losses following yesterday’s US Federal Reserve meeting and economic outlook.

The safe-haven USD bounced back after the bank’s economic outlook spooked investors and dampened risk sentiment.

The currency was able to regain its losses from earlier in the session after Fed’s policy stance. The bank expects rates to remain near zero for years to come, and it was welcomed by investors as a sign of its continued support for asset prices.

According to Moh Siong Sim, FX analyst at the Bank of Singapore:

‘The Fed met expectations, but at the same time it’s brought the focus back on the economy.

‘There’s also a sense that the rally has gone a bit too far too fast, and while economic numbers have been getting less bad it does not mean that it’s good.’

The bank also expects the economy to shrink by -6.5% while the unemployment rate is likely to remain around 9.3% by the end of the year.

Via video link, the head of the bank, Chair Jerome Powell noted:

‘It is a long road. We are not even thinking about thinking about raising rates.’

Pound (GBP) Struggles Ahead of April’s Growth Data

Sterling gave up its earlier gains against the safe-haven US Dollar on Thursday morning as the Fed spooked investors.

The British currency also suffered losses today as traders focused on the slew of disappointing data that is expected to hit GBP on Friday.

Economists expect tomorrow’s data is going to show the economy suffered a record collapse during April due to coronavirus lockdown restrictions.

This is when most of the British economy was subject to tight restrictions and is expected to be the low point of the economic slump.

A report from Reuters showed the median forecast amongst analysts was for a -18.4% monthly decline in GDP for April.

The most pessimistic forecast came from Investec chief economist Philip Shaw, who expects a -31.5% contraction.

Although, the least pessimistic analyst still expects a -8.5% drop. This would still be worse than anything seen during the 2008-2009 global financial crisis.

Markets were shocked by last week’s US jobs data, with the economy adding 2.5 million jobs after expectations of an 8 million drop. Although, analysts expect Britain’s growth will plummet.

According to Commerzbank economist, Peter Dixon:

‘I’ve been racking my brains to figure out what’s happened in the past, if there’s anything out there that would help me to understand what’s going on now. And the answer is, I don’t think there is. We’re in genuinely uncharted territory.’

Pound US Dollar Outlook: US Jobless Claims and UK GDP in Focus

Looking ahead to this afternoon, the US Dollar (USD) could give up some of its gains against the Pound (GBP) following the release of US jobless statistics.

Risk appetite will rise and weigh on the safe-haven ‘Greenback’ if initial jobless claims continue to decline, posting the lowest increase in claims since mid-March.

However, Sterling will suffer further losses at the end of the week following a slew of data releases.

If data reveals GDP plummeted further than expected in April due to lockdown restrictions while both industrial and manufacturing production tumbled, the Pound US Dollar (GBP/USD) exchange rate will slide.