The pound could strengthen against the US dollar in June, according to research from French banking giant Société Générale.

It has been noticed that in eight of the last ten years, the pound has risen against the greenback, as June appears to be a poor month for the US dollar.

As strategist Kenneth Broux at Société Générale noted: "Seasonals traditionally turn negative USD in June, but this recurring trend could be tested if investors rushed too quickly to conclude that the Fed will be less aggressive in raising rates this year."  At the same time, the US dollar has weakened following disappointing macroeconomic data and diminishing expectations for further interest rate hikes by the Fed.

Weak US dollar

The US dollar has recently fallen due to weak economic data and markets pricing less interest rate hikes by the Federal Reserve this year. This, combined with a broad-based decline in US Treasury yields and cautious comments by some Fed policymakers including Atlanta Fed President Raphael Bostic this week have raised the possibility that the dollar's gains could be limited. The market is cautious as the Fed could pause its tightening cycle in September. This sentiment has driven the dollar lower.

Sterling could rise

Sterling could strengthen from expectations of a June rate hike at the Bank of England, especially after the government’s $15bn boost to struggling households to ease the cost of living. The cash giveway could help increase economic activity and consumer confidence and boost inflation rates, forcing the Bank to consider raising rates.

The pound to US dollar exchange rate rallied after the release of the Fed’s minutes from the May policy meeting, which confirmed that policymakers could reconsider their interest rate position depending on the outlook of the economy. For example, if inflation rates fall significantly in the months ahead, then FOMC members would be “prepared to do less.”

The Fed and interest rate hikes

Chairman Powell and other members of the Fed have noted that they are prepared to lift interest rates more but also “to do less” if inflation rates begin to fall during the months ahead. According to their minutes, Federal Reserve officials stressed the need to raise interest rates quickly and more than markets anticipate to manage surging inflation. They also noted that policy may have to move past a “neutral” stance in which it is neither supportive nor restrictive of growth. As they stated in the minutes, “Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings.” But the Federal Open Market Committee members clarified that “a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook.”

This is important for the pound. If the Federal Reserve’s hiking expectations are lowered further then the US dollar will come under more pressure, while the pound will rise.

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The pound has risen against the euro and the US dollar but may struggle to extend its rebound. The pound to US dollar exchange rate could be close to posting its first monthly gain of the year. However, analysts remain cautious on the possibility of a more meaningful rally considering the divergence between the economic outlooks for the US and UK as well as the differences between the outlook for the Fed and BoE policies.

Investors will possibly become more active on Tuesday with the return of US market participants following the Memorial Day public holiday. From Thursday into the end of the week, the UK markets will also close for a long public holiday weekend for the British Queen’s Platinum Jubilee celebration.

Economic data such as May’s Conference Board Consumer Confidence survey out on Tuesday, ISM Manufacturing PMI survey data and April JOLTs Job Openings data out on Wednesday, and May’s labour market report on Friday, could create volatility.

Positive market mood

The risk-on mood has helped the pound and weighed on the safe-haven US dollar as investors expect the easing of Covid-19 restrictions in China to support the global economy.

UK Chancellor’s £15 billion cash giveaway

Sterling was also supported by expectations that the UK Chancellor Rishi Sunak's £15 billion cash giveaway would boost UK consumer confidence in the coming weeks. Sunak announced that more funds will be available to households which are struggling with the cost-of-living crisis.  

Brexit

The UK-EU disagreement over the Northern Ireland protocol has kept markets slightly cautious as the UK’s intension to override parts of a Brexit deal has raised concerns of a potential trade war amidst the cost-of-living crisis. Furthermore, a rate hike by the BoE could hurt the UK economy and will limit any further gains for the GBP/USD pair.

Economic data to influence the pound

  • GBP/USD

For this week, broader market sentiment and the release of the ISM Manufacturing PMI on Wednesday, the ADP report on Thursday and the jobs report (NFP) on Friday will influence the USD and provide direction to the GBP/USD pair.

  • EUR/GBP

Sterling has remained supported due to rising expectations of an interest rate hike by the Bank of England. Investors are also in a wait-and-see mode ahead of the important European Union summit which started this Monday. The flash German consumer inflation figures and Eurostat’s release of Eurozone inflation in May could influence the euro and provide direction to the EUR/GBP.

The market is pricing in 50bp rate hikes for the euro area, but some analysts doubt the ECB will raise rates more than 0.5% in July. This could be a risk for the pound, especially if the May inflation figures are better than expected. As some analysts noted, the risk is May’s CPI data, as it can rise from 7.4% to 8.2% or higher, as Nomura currency strategists said. For the euro, Eurozone inflation and the ECB policy are the main drivers this week.

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

he pound could benefit against the euro and the US dollar if Chancellor Rishi Sunak's cost of living package helps give a boost to consumer confidence in the coming weeks, analysts have said.

Speaking on Sky News on Friday morning, a day after announcing the £15bn giveaway for the cost-of-living crisis, Rishi Sunak said that he took a pragmatic approach on taxing the energy sector’s rising earnings. While the government was criticised for taking too long to act, Sunak explained that “It was right to wait until we had some more certainty about what would happen to energy bills in the autumn.” He also explained that electricity producers who avoided the energy profits levy could also face extra tax too, as the government has plans to reform the energy sector.

With energy prices continuing to rise, the government is expected to provide further measures, so the same situation is not repeated next year.

Will the package affect inflation?

The Chancellor explained that the new package will have minimal impact on inflation, much less than 1%, as it is targeted at those in need, while money is being raised through the windfall tax to pay some of the bill.

Sunak also noted that benefits and pensions could also rise ahead of inflation next year, which could push the benefits bill up by £25bn.

Sunak very confident about the outlook for UK economy

Sunak said he was “very confident” about the UK’s economic outlook. He told Radio 4 that the rise in energy prices and the tight labour market have pushed inflation higher. “We are experiencing inflation pressures from both a tight labour market, although that is something to celebrate, but also the energy price shock,” he said.

Deutsche Bank: recession could be avoided

The Chancellor’s £15bn support package should help the UK avoid falling into a recession, analysts at Deutsche Bank said. In a note to clients, Sanjay Raja, Deutsche’s chief UK economist, said that the £400 energy bill rebate and the £650 benefit to the lowest income houses will provide a modest boost to growth. He said the effects of the support will only come later in the year, which will leave households to deal with the real income shock for several more months without much support.

PM Boris Johnson is also optimistic that the UK can avoid falling into a recession, despite the difficult times that lie ahead. “We’re going to have a difficult period, and we’ve got to be absolutely clear with people it’s going to be difficult, and the government cannot solve every problem. We can’t cover everybody’s extra cost. But what we can do is make sure that we deal with the underlying causes of inflation, but also keep our economy strong and open to investment.”

As some analysts have noted, the Chancellor’s support package may have minimal impact in the near-term for the pound, but as soon as more positive economic data is released especially later next month, the then the pound could strengthen.

 

 

 

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

Analysts have warned that the pound is expected to underperform over the summer against major currencies as the economy slows down, recession fears and uncertainty continue, and the Bank of England pauses its interest rate hike cycle.

Global economic fears

Global leaders at the World Economic Forum in Davos have voiced similar concerns over a possible global recession and the escalation of the war in Ukraine. The war in Ukraine has exacerbated global economic uncertainty and has created “a major setback” to the global economy, as Gita Gopinath, first deputy managing director of the International Monetary Fund said.

High inflation is now a major concern for leading central banks who are forced to raise interest rates, while China’s economy is slowing due to the Covid-19 lockdowns. Multiple global shocks are hitting the world as major economies are starting to recover. The cost-of-living crisis is also a major concern along with the food crisis.

George Soros and WW3

Last night, veteran philanthropist George Soros has warned that Russia’s invasion of Ukraine could be the “beginning of the third world war” that could herald the end of civilisation. In his attack on Vladimir Putin and China’s Xi Jinping at the World Economic Forum in Davos, Soros explained that closed societies and autocratic regimes were gaining traction and that the global economy is heading for a depression. Soros said: “The invasion may have been the beginning of the third world war and our civilisation may not survive it. The invasion of Ukraine didn’t come out of the blue. The world has been increasingly engaged in a struggle between two systems of governance that are diametrically opposed to each other: open society and closed society.”

The 91-year-old former hedge fund owner who is hated by the hard right in the US explained that “repressive regimes are now in the ascendant and open societies are under siege. Today China and Russia present the greatest threat to open society.”

He praised Europe for responding to the war in Ukraine “with greater speed, unity and vigour than ever before in its history.” He added: “But Europe’s dependence on Russian fossil fuels remains excessive, due largely to the mercantilist policies pursued by former chancellor Angela Merkel. She had made special deals with Russia for the supply of gas and made China Germany’s largest export market. That made Germany the best performing economy in Europe but now there is a heavy price to pay. Germany’s economy needs to be reoriented. And that will take a long time.”

Kissinger’s warning

The 98-year-old former secretary of state Henry Kissinger has also expressed his opinion about Putin in Davos. However, for him Ukraine needs to cede territory to make peace with Russia. Speaking via video link to the World Economic Forum in Davos, on Monday, Kissinger said that by alienating Putin, Europe would face dire long-term consequences. He said: “Negotiations need to begin in the next two months before it creates upheavals and tensions that will not be easily overcome,” and that “Pursuing the war beyond that point would not be about the freedom of Ukraine, but a new war against Russia itself.” Kissinger was soon criticised for his statements as many said that his suggestions were unrealistic.

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

 

The pound fell after the release of disappointing UK preliminary Manufacturing and Services PMIs. The UK Manufacturing PMI dropped to 54.6 in May, while the Services PMI came at 51.8 in May. As a result, the pound to US dollar exchange rate dropped sharply.

PMIs

According to the S&P Global / CIPS PMI survey, growth in the UK private sector dropped to its weakest since the winter of 2021 lockdown, as the cost-of-living crisis hit customer demand in May. The seasonally adjusted S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) dropped to 54.6 in May versus 55.1 that was expected and 55.8 – April’s final reading. The preliminary UK Services Business Activity Index for May tumbled to 15-month lows, at 51.8 versus April’s final reading of 58.9 and 57.3 that was expected.

According to the survey, business expectations also fell to the lowest for two years in May due to the weakening global economic outlook and gloomy projections for consumer spending. The service sector showed the sharpest drop in business optimism.

Chris Williamson, Chief Business Economist at S&P Global, commented on the survey

“The UK PMI survey data signal a severe slowing in the rate of economic growth in May, with forward-looking indicators hinting that worse is to come. Meanwhile, the inflation picture has worsened as the rate of increase of companies' costs hit yet another all-time high. The survey data therefore point to the economy almost grinding to a halt as inflationary pressure rises to unprecedented levels.”

He said that rising prices, supply chain issues, labour shortages and increasingly gloomy prospects have added to rising concerns with companies reporting price resistance from customers. There are some signs that the rate of inflation could soon reach a peak, while a slowing in demand could help pull prices down in coming months. He highlighted that “the latest data indicate a heightened risk of the economy falling into recession as the Bank of England fights to control inflation. The survey data therefore point to the economy almost grinding to a halt as inflationary pressure rises to unprecedented levels.”

Inflation, recession, and Brexit concerns to influence the pound

JP Morgan analysts fear that the pound will remain “trapped in a stagflationary vortex” as inflation rises and growth slows down to "a borderline recession". Because double-digit inflation and zero growth are toxic to the pound, they said that they were cutting their GBP forecasts once again this month.

Their forecasts have also been cut as they believe that any potential deterioration in the trade relations between the EU and the UK as a result of possible changes to the Northern Ireland Protocol by the UK, will also add to a decline in the UK’s trade imbalances this year. They highlighted that the recent rallies by both the euro and the pound against the US dollar could be short-lived.

Economists at MUFG bank have also warned that legislation on the Brexit protocol will escalate in the coming weeks and any unilateral action by the UK could usher us into a new period of heightened uncertainty that will start to weigh on the pound.

 

 

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

The risk-on mood and positive market sentiment undermined the safe-haven US dollar and helped to push the pound higher. Today was the third consecutive day the pound rose, as the positive mood in equity markets pushed the US dollar lower and supported the pound.

However, analysts warn that recession fears and Brexit worries could limit any further gains, ahead of BoE Governor Andrew Bailey’s speech later on Monday.

Global economic concerns

With the global economic outlook deteriorating and major economies fearing stagflation, any potential gains for the pound will be limited, while the US dollar could rise as a safe-haven currency. Additionally, the Russia-Ukraine war and the latest Covid-19 lockdowns in China could pose considerable challenges to the global economy. Investors also remain concerned with any aggressive moves by major central banks to curb inflation, since, if interest rates rise too quickly, this can create a chain reaction that will affect the domestic and global economy and create a recession in some cases.

Brexit

Any further upside potential for the pound to US dollar exchange rate could be limited due to Brexit concerns. The current tensions and disagreement between the UK and the EU over the Northern Ireland protocol (NIP) might deter investors from trading the GBP/USD pair, analysts have noted. Boris Johnson's government has announced its intention to introduce legislation that could unilaterally suspend the protocol, fuelling fears about a potential trade war.

The Prime Minister and Bank of England (BOE) Chief Economist Huw Pill have attempted to calm markets by saying that policymakers have the resources to fight the risks from Brexit and the Russia-Ukraine crisis. On Friday, Johnson said he would have to use fiscal firepower to help people through the cost-of-living crisis: “In the months ahead we are going to have to do what we did before, we’re going to use our fiscal firepower that we built up, that we have, to help. We’re going to put our arms around the British people again as we did during COVID.”

BoE’s Pill mentioned on Friday that the Bank of England will need to raise interest rates further to fight rising inflation.

What to look forward to for the pound

  • Looking forward, a speech by Bank of England Governor Andrew Bailey at the Oesterreichische National Bank Annual Economic Conference, in Vienna will be key. The BoE Governor will speak with a policy panel that will focus on "Monetary policy, policy interaction and inflation in a post-pandemic world with severe geopolitical tensions."  
  • Any news and developments on Brexit, inflation and the war in Ukraine will provide further direction to the pound.

In the absence of any major market-moving economic data, investors will closely watch the BoE Governor Andrew Bailey's scheduled speech later. The broader market risk sentiment will influence the pound to US dollar exchange rate and provide some direction to the currency pair.

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

The pound rose after the release of better-than-expected retail sales for April.  UK retail sales volumes rose by 1.4% in April after falling 1.2% in March. The result is higher than the -0.2% the market was expecting. While rising inflation might not have destroyed consumer spending, economists are warning that the BoE will need to act immediately to curb inflationary pressures.

Retail sales

Food store sales volumes rose 2.8%, as consumers spent more on alcohol and tobacco in supermarkets. Alcohol and tobacco sales volumes jumped 8.4% in April, suggesting that consumers spent more time visiting the off-licence instead of the pub. Clothes sales also rose as the summer holidays and weddings are approaching. Fuel sales rose 1.4% after they fell 4.2% in March following higher petrol prices.

The wider picture is however disappointing as over the last three months, sales volumes fell by 0.3% when compared with the previous quarter. As ONS deputy director for surveys and economic indicators Heather Bovill said: “Retail sales picked up in April after last month’s fall. However, these figures still show a continued longer-term downward trend.”

Some analysts are optimistic and have noted that the report shows that the cost-of-living crisis hasn’t destroyed consumer spending. While things may get worse as inflation rises further, economic activity remains resilient.

Rising inflation: BoE chief economist’s warning

Huw Pill has warned that monetary policy needs to be tightened to stop inflation getting out of hand. In a speech to the Association of Chartered Certified Accountants in Wales, Pill said that the central bank has to deal with soaring inflation which threatens to become embedded in domestic price setting and slowdown growth by squeezing household incomes. Pill said that “the balance of risk is tilted towards inflation proving stronger and more persistent than anticipated in that baseline.”

In response to Pill’s warning, Samuel Gee, director at Bristol-based Manning Gee Investments, said that rates will continue to rise, but the economy will cope with more gradual increases, as the Fed’s more aggressive hiking plan has already countered concerns. In the UK, with an economy recovering from the pandemic and a war in Europe, there are many difficulties and risks.

Allan Monks, economist at JPMorgan, said that Pill’s concerns reveal that the MPC is perhaps “leaning towards a more hawkish interpretation” of the bank’s recent guidance.

Another warning came from former Bank of England governor Mervyn King who said that British people should expect a "very unpleasant period", with "considerable" interest rate hikes.

Lord King attacked central banks including the Bank of England and said they should take responsibility for the cost of living crisis which has pushed inflation higher. He said they would have to raise interest rates immediately: "It takes tough action. And it's not a pleasant period through which we're going to have to go."

With the current volatility and weak market sentiment, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

Growth concerns and recession worries have hit markets and the pound is expected to be weighed down if global investor sentiment remains gloomy. Late on Thursday, it recovered much of Wednesday’s decline, benefitting from a weaker US dollar.

Stock markets fall

Following the warnings of rising costs from US retailers Target and Walmart this week, market confidence was hit. While early this week the pound rose, a change in sentiment midweek has pushed it lower. The FTSE 100 which has a positive relationship to the pound, was down 2.2% on Thursday, with consumer goods and services firms, energy companies, banks and industrial stocks being some of the worst-performing sectors.

Royal Mail was leading the selloff, which fell over 10%, after warning about rising inflation and slowing growth. Investment group 3i (-8.3%), distribution firm Bunzl (-5.6%) and technology investor Scottish Mortgage (-5%) were also lower. Kingfisher (-4.8%), Tesco (-4.8%), and Unilever (-4.7%) fell too, as concerns about consumer spending being hit due to rising inflation rose.

As AJ Bell investment director Russ Mould said, “After the Walmart wobble on Tuesday, Target struck terror into the hearts of the US retail sector and was a big contributing factor behind the worst day for US markets since 2020 on Wednesday. The extent of the impact of inflation on these giants of American retailing has woken investors up, once again, to the huge impact surging prices are having on every facet of the economy.” This along with potential aggressive rate hikes from the Fed and stagflation concerns, have hurt investor sentiment.

UK manufacturing confidence falls

In the UK, confidence among UK manufacturers has fallen, despite UK manufacturing output growing at its fastest pace in ten months over the three months to May. According to the CBI’s latest Industrial Trends survey, confidence dropped in the last quarter, with investment plans for buildings and machinery plummeting. Many firms are also planning to raise their prices which will add more pressure to the households already struggling with higher costs.

Global concerns about rising inflation

In the near-term, the pound could respond to changes in global market sentiment. If the current stock market selloff continues, then Sterling will underperform, especially against the US dollar.

At the moment, investors are concerned about rising inflation and a possible recession in global economies, including the US, UK and the Eurozone.

Analysts have noted that any potential gains for the pound or stock markets will be temporary. A key concern for markets is the expected tightening of monetary policy in the US, with 50 basis point hikes expected at the next three policy meetings. This means that the cost of borrowing will not only rise in the US but also across other global economies.

The shocks from the war in Ukraine as well as the Covid lockdowns in China have also sparked global concerns about an economic slowdown.

Once markets start recovering and sentiment strengthens, then the pound may start to recover too. Morgan Stanley expects the current risk-off phase to come to an end around the third quarter of 2022, since by that time rate hike expectations will have reached their zenith alongside inflation. But analysts at Barclays said that positive global conditions could take up to a year to return. Others are more positive, as they believe economic data remains strong and consumer demand will not be destroyed.

What’s coming up

Any comments around the BoE monetary policy tightening will be a key driver for Sterling for the rest of the week, while April retail sales data due out on Friday, will also provide direction. The March report was the main cause of the mid-April drop in GBP/USD, as it highlighted the cost-of-living squeeze. If the retail sales report disappoints, and risk appetite remains weak in the coming days, then the pound to US dollar exchange rate could fall.

With the current volatility and weak market sentiment, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

 

 

UK inflation for April soared but came below market expectations, pushing the pound lower. UK headline CPI inflation rate printed at 9.0% year-on-year, which is below the 9.1% the market was expecting, but up from March’s 7.0% reading.

UK inflation is now at its highest level for more than 40 years due to the rising costs of gas and electricity which have pushed household energy bills higher after the rise of the Ofgem price cap in April. The next lift to energy prices will come in October when UK inflation is expected to reach close to 10%, according to the Bank of England.

UK inflation data

CPI inflation rose 2.5% month-on-month in April said the Office for National Statistics (ONS), higher 1.1% previously, but lower than the 2.6% the market was expecting. Core CPI rose 6.2%, but this was in line with the market's expectations. Month-on-month core rose 0.7% which was below expectations for 0.8%. The data is not a big surprise and won't alter market expectations for future Bank of England rate hikes.

Higher consumer prices

The rising cost of food and transport has pushed prices up, worsening the cost-of-living crisis. Not only households have faced the burden of rising costs but also businesses which are suffering from higher energy and fuel costs.

The ONS said the 54% increase in the energy price cap in April was the main reason the consumer prices index rose to 9%. Average petrol prices rose to 161.8p a litre in April with the average cost of diesel at the pumps hitting 176.1p a litre.

Prices at restaurants and hotels rose after the end of a temporary VAT cut for the hospitality industry.

The pound has weakened since last month adding more pressure on businesses as the cost of imports rose. Businesses are also experiencing a shortage of skilled workers, which combined with higher prices, could push the economy into recession, economists have warned.

The British Chambers of Commerce has called for the Chancellor Rishi Sunak to hold an emergency mini-budget, as inflation is damaging consumer spending and business investment, and the UK could enter a recession by the third quarter of the year.

The Chancellor has said he may support those on the lowest pay but the cabinet is divided over how to fund the billions of pounds that are said to be needed in extra subsidies or welfare payments, with some members being in support of a windfall tax on oil and gas companies.

Bank of England

The 9.0% rise in April’s consumer prices is in line with the BoE’s latest estimate and is not expected to change the Bank’s near-term guidance, as two more 25bp rate hikes this year are still priced in by markets. Bank of England policymakers will provide their feedback to the numbers at their meeting in June and markets expect a rate rise for the fourth time since last December to 1.25%.

However, economists are not sure how much further the Bank will go to raise interest rates, with some saying that it will raise rates twice before pausing.

With the current volatility and weak market sentiment, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

The pound to US dollar exchange rate has strengthened during the early Tuesday morning in Europe following the release of upbeat UK data. UK claimant count change fell to -56.9K and the unemployment rate was also lower to 3.7%. The positive numbers have boosted sentiment with traders expecting further upside.

At the same time, there is some unease ahead of a speech from Fed Chairman Jerome Powell, as well as any Brexit announcements that could limit potential gains for the British currency.

Claimant count change for April

The UK claimant count change for April dropped below the -38.8K which was forecast and the -46.9K in previous readings to -56.9K. The claimant count change refers to the additions in the unemployed labour force who have applied for jobless benefits. Today’s reading demonstrates a tight labour market.

ILO Unemployment Rate falls to 3.7% in March

On Tuesday, it was reported by the UK's Office for National Statistics that the ILO unemployment rate fell to 3.7% in the three months to March from 3.8%. The reading was slightly lower than the market expectation of 3.8%. The ILO unemployment rate released by the National Statistics refers to the number of unemployed workers divided by the total civilian labour force. It is an important indicator for the UK economy and the labour market in particular and shows lack of expansion and a weak economy when the rate is up, while a decrease of the number is considered positive. It is worth to note that here is a substantial reverse correlation between unemployment and inflation. A higher-than-expected unemployment rate tends to push the pound lower.

Also released today, was the average earnings including bonus and excluding bonus which rose by 7% and 4.2%, respectively, on a yearly basis.

The optimistic UK employment numbers reinforce market expectations for faster rate hikes bybthe Bank of England (BOE). However, analysts noted that this has been priced in and that the pound could find further direction from new developments. Sterling was also supported by a slightly weaker US dollar as market sentiment recovered following Covid headlines from China and disappointing US data and Fedspeak.

What to look forward to today

Looking forward, today’s speech from Fed Chairman Jerome Powell will be important for the GBP/USD currency pair with markets anticipating Powell to defend a 50-bps rate hike. If he does not mention this, the US dollar could weaken.

At home, UK PM Boris Johnson is expected to release details of changes to the Northern Ireland Protocol (NIP). The PM has confirmed he will propose legislation to overrule the Northern Ireland protocol, despite warnings from Brussels and a request from the Bank of England not to initiate a trade war with Europe. The prime minister said his government wanted to “fix” the protocol and not to “scrap it.”

With the current volatility and weak market sentiment, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.