Pound v US dollar: GBP rallies from six-week low against USD

THE pound rallied against the US dollar this morning as Britain’s latest employment data impressed investors.

pound to dollar GBP USD exchange rate UK employment wage growthGETTY - STOCK

The pound rallied against the US dollar as UK employment data impressed investors

Sterling is currently at $1.289 against the US Dollar, up 0.22 per cent from its opening levels, but still below the high of $1.296 struck yesterday.

Today’s employment data published by the Office for National Statistics revealed that the UK’s workforce continued to expand at a healthy pace in June, with the unemployment rate falling from 4.5 per cent to a new 42-year low of 4.4 per cent.

However, investors were even more upbeat about the accompanying average earnings figures as the ONS reported that wages grew by 2.1 per cent at the end of the second quarter, beating expectations it would slump to 1.8 per cent.

The deviation between inflation and wages has become an increasing concern for investors in recent months so markets will be relieved to see that today’s data has seen that gap narrow slightly.

pound GBP coinsGETTY - STOCK

GBP is currently at $1.289 against USD, up 0.22 per cent from its opening levels

However with households still facing a 0.5 per cent drop in real wages, concerns that consumer spending is slowing will likely remain and contribute to the Bank of England (BoE) maintaining its dovish outlook for the foreseeable future.

Meanwhile, the US dollar was bolstered on Tuesday as upbeat US data suggested that the country’s economic performance improved slightly at the start of the third quarter.

This was largely thanks to the release of better than expected US retail sales, with the US Commerce Department reporting that sales grew by 0.6 per cent in July, while also upwardly revising June’s reading from a gloomy -0.2 per cent to 0.3 per cent.

The upbeat sales figures also helped to renew confidence in the chances of a rate hike later in the year from the Federal Reserve, with CME’s FedWatch tool now placing the odds of a December rate hike at around 50 per cent, up from 30 per cent last week.

Looking ahead, movement in the GBP/USD exchange rate is likely to be driven by the release of the FOMC minutes from the most recent Fed meeting later this afternoon.

Should the tone of the minutes suggest that the Fed is still optimistic about the chances of another rate hike taking place this year then the US dollar is likely to surge.

Meanwhile, Sterling sentiment may tumble on Thursday as the UK releases its own retail sales data, with economists forecasting that sales will have slipped from 0.6 per cent to 0.2 per cent in July as consumer spending continues to be pressured by a fall in real wages.

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