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Pound US (GBP/USD) Dollar Exchange Rate to Bolster on UK Inflation?

Stacks of US Dollar (USD) banknotes.

GBP/USD Exchange Rate Surges Despite Downbeat UK Jobs Data

The Pound US Dollar (GBP/USD) exchange rate is soaring drastically despite UK unemployment climbing and falling real wages.

At time of writing the GBP/USD exchange rate is around $1.1878, a 1% jump from this morning’s opening levels.

Pound (GBP) Defiant of Mounting Economic Pressures

The Pound (GBP) is enjoying moderate success against its major rivals today despite the concerning employment climate.

The unemployment rate climbed higher-than-expected as it printed at 3.6%, a first climb since April. Expectations of the rate remaining steady at a record low of 3.5% were short as the darkening economic landscape starts to tighten its grip on the labour market. With the country already in recession, warnings of a continually rising unemployment are mounting. Yael Selfin, Chief Economist at KPMG, said:

‘It is only a matter of time before the recessionary environment spills into the labour market as employers increasingly consider the weakening demand and rising labour costs.

‘While the vacancy rate will likely be one of the first indicators to turn, we expect the unemployment rate to eventually peak at around 6% by 2024.’

Elsewhere, real wages continue their slide as inflation surges. Despite pay, including bonuses, rose by 5.7% from 5.4% in July – September, real wages are still lagging. Chancellor Jeremy Hunt, ahead of his autumn statement, has blamed the invasion of Ukraine for driving inflation and wages not keeping pace. Hunt added:

‘Tackling inflation is my absolute priority and that guides the difficult decisions on tax and spending we will make on Thursday. Restoring stability and getting debt falling is our only option to reduce inflation and limit interest rate rises.’

Looking ahead, all eyes will be on tomorrow’s release of consumer inflation data. Expectations of inflation soaring once again to 10.7%. The double-edged sword of hot inflation could see rate hike expectations bolstered, but economic concerns could be exacerbated. However, regardless of the outcome, GBP investors could remain cautious ahead of the autumn statement.

US Dollar (USD) Undermined by Risk-On Market Mood

Meanwhile, the US Dollar (USD) kicked off the day on the backfoot as an improvement in global market sentiment dents safe-haven flows.

Despite hawkish comments from Federal Reserve policymakers, a softer-than-expected inflation continues to cheer investors as fears of a global recession are waning. However. expectations of further interest rate hikes still lend some modest support to the ‘Greenback’. But odds on another 75bps rate hike have now fallen below 20%, considerably less than 70% last month.

Looking ahead, US retail sales could see the US Dollar recover modestly if sales prove accurate. An expected rebound in sales could provide some support for the ‘Greenback’.

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