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Will Signs of US Labour Market Coolness Strengthen Pound US Dollar (GBP/USD) Exchange Rate?

US Dollar Currency Forecast

Pound US Dollar (GBP/USD) Exchange Rate Gains amid USD Selloff

The Pound US Dollar (GBP/USD) exchange rate is firming today. The pairing may be finding support from a persistent US Dollar (USD) selloff. Fresh fears of a US banking sector crisis and bets on a pause in policy tightening from the Federal Reserve could be driving the pullback in USD.

Additionally, bets on a 25bps interest rate hike from the Bank of England (BoE) next week may be bolstering GBP/USD. However, thin trading conditions for the Pound may be limiting the pairing’s gains.

At time of writing the GBP/USD exchange rate is at around $1.2608, which is up 0.2% from this morning’s opening figures.

Will Persistently High Core Inflation Boost US Dollar (USD)?

Later today, April’s non farm payrolls figures are expected to fall to 180,000. Signs of coolness in the US labour market could weigh on the US Dollar.

Additionally, April’s unemployment is expected to edge higher to 3.6% from its previous low of 3.5%. If these figures print as forecast, it could deepen any potential losses for USD.

Investors will also be looking to average earnings figures for any evidence of underling inflationary pressures in the US labour market. A softer printing could dent confidence in the US Dollar.

Looking to the coming week for USD, April’s inflation figures could prompt a mixed response in the currency on Wednesday. On the one hand, headline inflation is expected to tick lower to 4.9% which could weaken the currency.

On the other hand, core inflation is expected to have remained unchanged in April. Evidence of sticky inflation could strengthen the currency.

An expected rise in April’s PPI could also strengthen USD if it the index prints as forecast on Friday.

Will Pound (GBP) be Lifted by BoE Rate Hike and Guidance?

Markets will be keenly awaiting the BoE’s interest rate decision on Thursday. The expected 25bps interest rate hike is unlikely to have a drastic impact on the Pound given that markets have largely priced it in.

Investors will instead be looking for signals of the central bank’s forward path. Any hints of additional policy tightening from the BoE could boost Sterling. Friday’s GDP data could also lift GBP if it prints as expected. March’s figures are set to indicate a 0.1% expansion in the UK’s economy and could help limit fears of a UK recession in 2023.

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