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Robust US Employment Figures to Weaken the GBP/USD Exchange Rate?

Stacks of US Dollar (USD) banknotes.

GBP/USD Exchange Rate Slides in Cautious Trade

The Pound US Dollar (GBP/USD) exchange rate is trading with modest losses this morning. A cautious mood ahead of the latest US employment data appears to be driving the downturn.

At the time of writing the GBP/USD exchange rate is trading at around $1.2024. Down roughly 0.3% from this morning’s opening rate.

US Dollar (USD) Poised to Rally on Strong Payrolls Release?

The US Dollar (USD) looks likely to strengthen through the latter half of this week as the US prepares to publish its latest employment figures.

The spotlight will undoubtedly be on the latest non farm payroll figures, which at scheduled for release on Friday.

Economists forecast the US economy will have continued to add jobs at a robust pace through December.

Perhaps even more important will be the accompanying wage growth figures. Wage growth surprised to the upside in November. This is likely to bolster inflation expectations within the Federal Reserve and reduces the chances of the bank further slowing the pace of its rate hikes in early 2023.

Michael Hewson, Chief Market Analyst at CMC Markets, comments:

‘November’s [report] surprised a lot of people in the context of a surprise in average hourly earnings. It helped to undermine a narrative that US inflation was on a downward path … undermining the possibility that we might get a further step down to 25bps when the Federal Reserve next meets in February.’

Ahead of Friday’s payrolls release we will see the publication of December’s ADP employment figures.

A strong reading this afternoon could bolster expectations for the more influential payrolls release and help the US Dollar to build on this morning’s gains.

UK Strikes Continue to Threaten the Pound (GBP)

Widespread industrial action in the UK continues to pose a challenge for the Pound (GBP) at the start of 2023.

This week sees the UK economy face further disruption due to the latest round of rail strikes and follows a wave of industrial action over the Christmas period.

GBP investors fear the strikes are placing even more pressure on the UK economy at a time when it is already under considerable strain.

There is also the threat of more disruption in the future amid the threat that unions may begin to coordinate their strike action.

The UK is widely accepted to already be in a recession, but the strikes could lead to a deeper slowdown than investors had hoped. Fears of which leave the Pound vulnerable against the US Dollar this week.

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