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Will GBP/USD Climb on Boosted BoE Rate Hike Bets?

Stacks of US Dollar (USD) banknotes.

Pound US Dollar (GBP/USD) Exchange Rate Soars amid Red Hot Labour Data

The Pound US Dollar (GBP/USD) exchange rate is climbing this morning, following the publication of this morning’s UK labour data.

At the time of writing, GBP/USD is trading at around US$1.2571, rising by just over 0.5% from the morning’s opening rates.

Will GBP Rally on GDP Expansion?

The Pound (GBP) could continue to gain ground today, following this morning’s employment data. The unemployment rate for April surprised investors this morning, by printing below forecasts at 3.8%.

Furthermore, wage growth data came in hot. Average earnings excluding bonuses rose to 7.2%, above forecasts of 6.9% for the three months leading up to April.

As this is considered a key inflationary pressure by the Bank of England (BoE), it may continue to support Sterling by yielding elevated interest rate hike bets.

Looking ahead to tomorrow, the latest UK GDP data is due to print. Economists are forecasting growth of 0.2% over the month of April, which could bring cheer to GBP investors by indicating a recovery in the economy.

Furthermore, it could indicate economic resilience. This would bolster the case for further tightening from the BoE, as the economy could bear additional rate hikes. In turn, this would likely boost Sterling as investors look to make a return on their investment.

Will USD Weaken on Fed Pause?

Over the course of today’s session, the US Dollar (USD) could come under heavy pressure as investors await the latest consumer price index data.

This afternoon, both core and headline inflation are scheduled to print. Headline inflation is forecast by economists to cool sharply, from 4.9% to 4.1%. Core inflation is forecast to cool to 5.3% from 5.5%.

With the Federal Reserve widely expected to put the breaks on their current tightening cycle, the inflation data could weigh heavily on the US Dollar if it prints in line with forecasts.

This would then set the stage for tomorrow, wherein the Fed publish their latest interest rate decision. With markets having already priced in a pause, the focus will be on Fed Chair Jerome Powell’s accompanying forward guidance.

If Powell strikes a hawkish stance, it may mean little for the ‘Greenback’, as the action of pausing would likely drown out any rhetoric. Because of this, the US Dollar could weaken during tomorrow’s session.

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