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Pound US Dollar (GBP/USD) Exchange Rate Left Muted as Millions More Americans Out of Work

Pound Sterling US Dollar (GBP/USD) Exchange Rate Flat on ‘Sky-High’ US Unemployment

UPDATE: The Pound Sterling US Dollar (GBP/USD) exchange rate was left flat on Thursday afternoon. This left the pairing trading at around $1.2230.

Data revealed that millions more Americans filed for unemployment benefits last week, as initial jobless claims jumped by 2,438,000.

Backlogs of claims continue to be cleared and the data highlights the complications from the coronavirus crisis which has sparked a second wave of layoffs in the world’s largest economy.

This suggests May could be another month of staggering job losses. Commenting on this, Glassdoor’s senior economist, Daniel Zhao stated:

‘Today’s sky-high unemployment insurance claims report brings the total UI claims to 38.6 million and surpasses yet another historical benchmark. In only nine weeks, unemployment claims made during the coronavirus crisis have already exceeded the 37 million claims made over the entire 18 months of the Great Recession.

‘The coronavirus crisis continues to inflict swift and deep impacts on the labor market at a near unprecedented clip.’

Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted as Trump Hurts US-China Relations

The Pound Sterling US Dollar (GBP/USD) exchange rate was left flat on Thursday morning. This left the pairing trading at around $1.2190.

The US Dollar firmed this morning, clawing back some losses as investors became increasingly cautious.

The US Dollar was able to rise against the Pound earlier this morning after minutes from the Federal Reserve revealed fears of ‘extraordinary amount of uncertainty and considerable risks’ due to Covid-19.

The minutes also showed there was no discussion of negative rates during April’s meeting. This is a controversial approach to policy and supported by the country’s president.

Meanwhile, increased US-China tensions and a slew of weak economic indicators dampened weighed on market sentiment and supported USD.

Relations between the US and China have been left strained after US President Donald Trump attacked Beijing’s handling of the coronavirus crisis.

Late on Wednesday, President Trump used Twitter to accuse China of a ‘massive disinformation campaign’ seeking to hurt his chances of re-election ‘so they can continue to rip-off’ the US.

Sterling (GBP) Falls as UK to See a ‘Frustratingly Slow Recovery’

The Pound edged lower as traders continued to worry about the Bank of England (BoE) sending rates into negative territory.

Terence Wu, FX strategist at Singapore’s OCBC Bank noted:

‘The negative view we previously held for the kiwi on the back of a dovish Reserve Bank can now be extended to the Pound and the BOE.

‘For now, with the soggy Dollar protecting cable downside, we prefer to express this view through a higher Euro/Sterling.’

Meanwhile, the Pound was left muted after PMI data showed the downturn in the UK’s private sector continued.

Although, Markit showed the speed of the downturn eased in May compared to April’s final data.

Britain’s PMI composite increased from 13.8 to a two-month high of 28.9. Added to this, both flash manufacturing and services PMIs hit two-month highs, which offered some support.

However, May’s flash data implies rapid declines in both new work and unemployment. Rates of contraction for manufacturing and services were the second-fastest in over 20 years, weighing on GBP.

Commenting on May’s flash data, Markit’s Chief Business Economist, Chris Williamson said:

‘The UK economy remains firmly locked in an unprecedented downturn, with business activity and employment continuing to slump at alarming rates in May. Although the pace of decline has eased since April’s record collapse, May saw the second largest monthly falls in output and jobs seen over the survey’s 22-year history, the rates of decline continuing to far exceed anything seen previously.

‘However, the UK looks set to see a frustratingly slow recovery, given the likely slower pace of opening up the economy relative to other countries which have seen fewer COVID-19 cases. Virus related restrictions, widespread job insecurity and weak demand will be exacerbated by growing business uncertainty regarding Brexit. We are consequently expecting GDP to fall by almost 12% in 2020. While the quarterly rate of decline looks likely to peak at around 20% in the second quarter, the recovery will be measured in years not months.’

Pound US Dollar Outlook: US Jobless Claims and UK Retail Sales in Focus

Looking ahead to this afternoon, the US Dollar (USD) could rise against the Pound (GBP) following the release of US jobless claims data.

If initial jobless claims continue to rise, jumping higher than expected, it will weigh on risk appetite and traders will flock to the safety of the ‘Greenback’.

Meanwhile, Friday could see Sterling slide further following the release of UK retail sales data.

If sales nosedive in April, showing consumers are increasingly cautious due to the coronavirus crisis, the Pound US Dollar (GBP/USD) exchange rate will slump.