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.

The pound has struggled on Monday morning amid renewed risks as market sentiment has deteriorated and Brexit fears concerning the Northern Ireland Protocol (NIP) have returned.

Brexit

The UK Prime Minister (PM) Boris Johnson is preparing for changes in the NIP in order to come to an agreement with the European Union (EU). The UK government will reveal plans for changes in the NIP on Tuesday, but the EU has warned that any such actions will result in the potential cancellation of a trade deal with Britain.

Despite Brexit concerns, an article in the Financial Times (FT) has said that British manufacturers are optimistic as they attempt to ease supply chain concerns. According to a survey by Make UK, the manufacturers’ trade group: “Three-quarters of companies have increased the number of their British suppliers in the past two years.

Nonetheless, the current risk-off mood and gloomy market sentiment about Brexit will weigh on the pound to US dollar exchange rate.

Treasury Committee to question BoE senior figures

On Monday, the Monetary Policy Report hearing in parliament could confirm traders’ concerns about how their expectations for Bank of England interest rates might need to be readjusted and could create further disappointment. The Committee is likely to discuss whether the BoE’s recent decision to increase interest rates has weakened the economic outlook for the UK, as well as increases in the cost of living. The weakened consumer outlook and real income squeeze will make it difficult for the Bank of England to deliver anything close to what markets are currently expecting.

Economic data to move the pound this week

While parliamentary testimonies from BoE policymakers this afternoon will influence Sterling, key economic releases coming out this week including the latest employment numbers on Tuesday and April’s inflation data on Wednesday will have an impact too.

On Tuesday, jobs figures are expected to demonstrate a tight labour market and possibly some marginal acceleration in wage growth.

On Wednesday, the April inflation report should also show an increase in the headline rate above the 9.0% mark (2.5%+ month-on-month reading) while the core rate is forecast to rise above 6.0%. Analysts expect these numbers not to have a major impact on monetary policy since the Bank of England has already included double-digit inflation later this year in its latest forecasts.

Wednesday’s inflation number will be the most important release and it could cause some volatility considering the Bank of England’s recent cautious tone and warning against the number of interest rates expected by markets. Even if there is a pleasant surprise this Wednesday, analysts have warned that with the BoE having pushed back quite aggressively against market expectations, the pound will find it difficult to get a boost.

 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.