– Written by
John Cameron
STORY LINK GBP/USD Forecast: Strong UK Jobs Data Lifts Pound Serling, BoE Rate Hike Bets
The Pound to US Dollar (GBP/USD) exchange rate moved higher on Tuesday after unexpectedly strong UK employment figures reinforced expectations that the Bank of England (BoE) will raise interest rates in November.
At the time of writing, GBP/USD was trading at around $1.3346, up approximately 0.3% from Tuesday’s opening levels.
Sterling found fresh support after the latest UK labour market report delivered a considerably stronger performance than economists had anticipated.
Figures from the Office for National Statistics (ONS) showed the unemployment rate fell from 4.9% to 4.7% in the three months to August, defying expectations for a broadly unchanged reading.
Employment also increased by 102,000, comfortably exceeding forecasts for a rise of just 20,000.
Wage growth provided further encouragement for Pound investors.
Regular earnings, excluding bonuses, accelerated from 3.6% to 3.7% year-on-year, suggesting that underlying pay pressures remain persistent despite earlier signs of a cooling labour market.
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The stronger figures reinforced expectations that the BoE will deliver another 25-basis-point interest rate increase at its November meeting.
With unemployment falling and wage growth remaining firm, policymakers may have less reason to delay further tightening, particularly while inflation continues to exceed the Bank’s 2% target.
The prospect of higher UK borrowing costs helped Sterling strengthen against several of its major counterparts.
The US Dollar (USD), meanwhile, struggled to attract demand on Tuesday as improving market sentiment reduced appetite for traditional safe-haven currencies.
Although oil prices remained elevated and concerns persisted over the possibility of renewed escalation in the Middle East, investors showed a greater willingness to hold riskier assets.
Expectations that the Federal Reserve could raise interest rates more gradually than previously anticipated also limited support for the ‘Greenback’.
US political developments added another source of uncertainty.
Recent polling suggesting stronger support for the Democrats ahead of the mid-term elections raised questions over whether President Donald Trump could face greater opposition to his legislative agenda.
However, the Dollar’s losses remained relatively contained as investors continued to monitor geopolitical risks and the outlook for US monetary policy.
Near-Term GBP/USD Forecast: UK Inflation Could Extend Sterling’s Gains
Wednesday’s UK consumer price index (CPI) release will provide the next major test for the Pound to US Dollar exchange rate.
Economists expect annual headline inflation to accelerate from 3.1% to 3.4% in September, adding to concerns that price pressures remain stubbornly elevated.
Following Tuesday’s stronger employment figures, an above-forecast inflation reading would strengthen the case for another Bank of England rate increase in November.
This could allow Sterling to build on its latest gains and challenge the $1.3400 level.
However, a softer inflation reading could temper expectations for further tightening and encourage some profit-taking following the Pound’s recent recovery.
For the US Dollar, the absence of major economic releases may leave broader market sentiment as the main influence on trading.
Renewed geopolitical tensions or a deterioration in risk appetite could revive demand for the safe-haven Dollar, potentially limiting GBP/USD’s upside.
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TAGS: Pound Dollar Forecasts
