Largest Fall in Employment Since 2009 leaves Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted
The Pound Sterling US Dollar (GBP/USD) exchange rate remained flat on Tuesday morning. This left the pairing trading at around $1.3095 following the latest employment data.
The Pound struggled to make gains after this morning’s data showed the number of people in employment fell by 220,000 in Q2.
The Office for National Statistics (ONS) noted this was the largest fall in employment since 2009. The coronavirus crisis took a huge toll on the labour market despite support from the government’s furlough scheme.
The unemployment rate held steady at 3.9%, although this largely reflected huge numbers of Brits giving up looking for work.
Separate data also showed that the number of staff on company payrolls fell by -730,000 since March. This suggests there will be a larger increase in the country’s unemployment rate.
Markets expect further job losses as the government winds down the furlough scheme in a few months. British Chancellor, Rishi Sunak noted the current figures showed the scheme was working but job losses were inevitable.
Commenting on this, Ruth Gregory, senior economist at Capital Economics said:
‘The cracks evident in the latest batch of labour market data are likely to soon turn into a chasm.
‘I’ve always been clear that we can’t protect every job, but […] we have a clear plan to protect, support and create jobs to ensure that nobody is left without hope.’
US Dollar (USD) Flat as Markets Focus on US-China Tensions
The US Dollar remained flat on Tuesday, although was able to hold onto Monday’s gains after hitting a one-week high against the Euro.
Growing tensions between the US and China as well as the current stalemate in Congress over fiscal stimulus boosted safe-haven demand.
In response to Washington’s sanctions on Chinese and Hong Kong officials, China imposed sanctions on 11 US citizens. These included Republican lawmakers.
Added to this, tensions increased after US Treasury Secretary Steven Mnuchin noted companies from China and other countries that don’t comply with accounting standards will be delisted from the US stock exchanges.
While the market’s reaction to the deteriorating relations has been limited analysts have noted these confrontations will have longer-term implications.
Commerzbank currency analyst Antje Praefcke noted:
‘The market remains in the expectation that everything will turn out for the best in the dispute. [But] an agreement has probably already been priced in accordingly, which means that the Dollar has hardly any more upside potential.’
Pound US Dollar Outlook: UK GDP and US Inflation in Focus
Looking ahead to tomorrow morning, the Pound (GBP) could slide against the US Dollar (USD). Traders eagerly await the latest UK GDP data which is expected to plummet in the second quarter.
Britain’s economy is expected to shrink by more than 20% between April and June. If data shows growth has contracted more than forecast, it will weigh on Sterling.
Meanwhile, the Dollar could make some gains if the latest US inflation data spooks investors and buoys safe-haven currencies.
If US inflation does not rise as high as expected in July it will weigh on sentiment and send the Pound US Dollar (GBP/USD) exchange rate lower.