Pound Sterling to Dollar Forecast: GBP/USD Rallies as US Labour Data Softens

– Written by


Tim Boyer

STORY LINK Pound Sterling to Dollar Forecast: GBP/USD Rallies as US Labour Data Softens

The Pound-to-Dollar exchange rate (GBP/USD) surged on Tuesday, hitting a two-month high as a run of stronger-than-expected UK data fuelled demand for Sterling.

At the time of writing, GBP/USD was trading around $1.3427, up roughly 0.4% on the day, although it had eased slightly from an earlier two-month peak of $1.3451.

The Pound (GBP) climbed despite fresh signs that the UK labour market is cooling. While the latest employment report confirmed joblessness has risen to a four-year high and wage growth has slowed, the figures were notably less weak than markets had feared.

Average earnings growth eased from an upwardly revised 4.9% to 4.7%, comfortably outperforming expectations for a sharper slowdown to 4.4%. Employment also declined by just 16,000, far milder than the 60,000 drop forecast by economists. The data suggested the labour market remains relatively resilient, helping Sterling gain ground following the release.

Sterling’s momentum was reinforced by the UK’s preliminary PMI surveys. December’s services PMI was particularly supportive, showing activity strengthened as the index rose from 51.3 to 52.1. The improvement in the UK’s dominant services sector added to the positive tone and further underpinned the Pound.

The US Dollar (USD) struggled to attract support on Tuesday as markets awaited the long-delayed non-farm payrolls report.

Once released, the data painted a mixed picture of a softening US labour market. Payrolls rose by 64,000 in November, beating forecasts for a 50,000 increase, but followed a sharp 105,000 contraction in October. Job growth in August and September was also revised lower, while the unemployment rate climbed from 4.4% in September to 4.6% in November.

Several economists urged caution in interpreting the figures, noting distortions linked to the recent government shutdown, immigration policy changes and seasonal effects. Even so, the US Dollar experienced choppy trade after the release and remained on the back foot overall.

GBP/USD Forecast: UK Inflation to Fuel BoE Rate Cut Speculation?

Looking ahead, attention turns to Wednesday’s UK consumer price index release, which may shape expectations for the Pound ahead of the Bank of England’s (BoE) interest rate decision on Thursday.

Headline CPI is forecast to ease from 3.6% in October to 3.5% in November. Evidence that inflation continues to cool would reinforce the view that price pressures have peaked, potentially strengthening expectations that the BoE will continue cutting interest rates next year and leaving Sterling vulnerable.

A downside surprise could intensify pressure on the Pound, while a firmer-than-expected reading may offer some short-term relief.

In the US, the economic calendar is relatively light on Wednesday, leaving the ‘Greenback’ sensitive to shifts in broader market sentiment. A risk-on mood could sap demand for the safe-haven currency, while any deterioration in confidence may help support USD.

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TAGS: Pound Dollar Forecasts