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British Pound to US Dollar Exchange Rate Tumbles Again on Strong US Job Data

Published: 4 Aug at 3 PM Tags: Pound Sterling, Dollar Exchange Rate, Currency Exchange, UK, Exchange Rates, Economy, Inflation, Pound Dollar Exchange Rate,

Despite persistent US political uncertainty in recent weeks, the British Pound to US Dollar exchange rate has fallen due to Bank of England (BoE) news and a strong US Non-Farm Payroll report.

UK news and US data has caused GBP/USD volatility over the last week. The pair opened the week at the level of 1.3133 and briefly hit a 2017-high of 1.3256 on Thursday, before plunging again and hitting a weekly low of 1.3073 on Friday.

Sterling benefitted strongly from the US Dollar’s weakness at the beginning of the week, partially thanks to Britain’s solid July manufacturing PMI from Markit.

However, the Pound’s strong-streak against the US Dollar came to an end on Thursday following the latest Bank of England (BoE) policy decision.

The Bank of England’s decision itself was largely unsurprising. UK monetary policy was left frozen at its loosest levels on record and only the banks two most hawkish policymakers voted to hike rates.

What disappointed markets was the bank’s downgraded UK growth and wage growth forecasts, which indicated the bank does not expect Britain’s economy to remain as resilient as previously thought.

The bank’s 2017 forecast was slashed from 1.9% to 1.7% and 2018 is forecast to slow further to just 1.6% next year. 2018’s wage growth outlook was also cut, from 3.5% to 3%.

BoE Governor Mark Carney took a dovish tone in his latest press conference, issuing fresh warnings on the potential negative effects of Brexit on Britain’s economy.

He noted that it was becoming increasingly evident that Brexit uncertainty was causing investors to hesitate on making new investments or raise wages.

The US Dollar benefitted from Sterling weakness towards the end of the week, despite persistent US political uncertainties.

Markets have lost a lot of faith in US President Donald Trump, as he has so far failed to nab any major legislative victories in Congress.

With the Republican healthcare bill seemingly dead for now, investors are doubtful that Trump will be able to push through his plans for tax reform or infrastructure changes.

Despite this, the US Dollar saw a strong boost in demand towards the end of the week as investors reacted to a much better-than-expected US Non-Farm Payroll report from July.

July saw a better-than-expected payroll change of 209k, beating forecast of 183k.

The unemployment rate improved from 4.4% to 4.3% as expected, despite the participation rate unexpectedly improving from 62.8% to 62.9%.

US wage growth was also steady which would likely be good news for the Federal Reserve. Bets for a December Fed rate hike increased slightly following the report, but most traders still think the Fed will leave rates frozen until 2018.

Next week’s trade session is likely to be quieter for the Pound to US Dollar exchange rate, due to a lack of key data due for most of the week.

Britain’s June trade deficit update, as well as manufacturing and industrial production, will be published on Thursday.

The main event for GBP/USD traders however, will be next Friday’s US Consumer Price Index (CPI) results from July.

US inflation came in weaker than expected in June, which led to a plunge in Fed rate hike bets and a weaker US Dollar.

If US inflation has rebounded and was stronger-than-expected in July, Fed rate hike bets and the US Dollar would surge, pushing GBP/USD down towards the end of next week.
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