GBP/USD Conversion Recovers as Employment + Wage Data Improves

The British pound is in recovery mode against the dollar and euro following the release of wage and employment data in the UK.

The pound sterling managed to power higher against the euro and dollar after it was confirmed the UK economy still has the ability to deliver upside surprises to the economic docket.

Driving the pound higher over the past 24 hours was news that the unemployment rate fell to 5.4%, analysts had expected the rate to remain stuck at 5.5%.

Wage growth continues to tick higher nicely with a reading of 3% being recorded for August. This contrasts with inflation set at -0.1% to create the environment where British citizens are now seeing comfortable increases in their pay.

The data will play into the hands of those who expect the Bank of England to raise interest rates early in 2016 - an event that is highly positive for the pound sterling's outlook, particularly in the wake of the recent weakness.

The pound to dollar exchange rate is pushing upwards once more and is at 1.5327, the next target is resistance which lies just below 1.54.

We will need to see this region broken ahead of gains towards September highs of 1.56.

The pound to euro exchange rate meanwhile recovers slighyly and is quoted at 1.3433. The near-term trend does however remain firmly focussed lower.

GBP/USD Recovers

The sharp reversal in the British pound seen just 24 hours earlier was one of the biggest stories in the foreign exchange market.  

The UK currency saw strong gains in the first half of October but the decline raises questions about whether we have witnessed a peak.

The GBP to USD conversion has fallen from an October best at 1.5380 to the current levels around 1.5270.

The sell-off in the pound was triggered by the surprise decline in inflation.

CPI dropped 0.1% in the month of September, which was even worse than the market's forecast for stagnant prices.

What the British pound requires for its rally to re-establish is for expectations on an interest rate rise at the Bank of England to be brought forward once more.

Currently markets are pushing their expectations for the first rise of the upcoming raising cycle to occur in mid-2016. The pound is falling in line with the movement in interest rate expectations.

Today's employment data could go some way in bringing expectations forward.

Latest Pound / US Dollar Exchange Rates

	Live: 1.3372▼ -0.11% 12 Month Best: 1.3789
*Your Bank's Retail Rate	1.2917 - 1.2971
**Independent Specialist	1.3185 - 1.3238 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

US Dollar On Offer

Sterling soared on the combination of GBP strength and USD weakness.

Investors sold U.S. dollars aggressively after the mid-week release of an abysmal U.S. retail sales report.  

Consumer spending rose by only 0.1% in September but spending in August was revised down to 0% from an initial 0.2% forecast.
Excluding auto and gas, there was no growth in retail sales and excluding only autos, spending dropped -0.3%. Furthermore, producer prices fell by -0.5%, the steepest decline this year.  

"With inflation falling and consumer spending stagnating, it will be very difficult for the Federal Reserve to pull the trigger this year.  The economy could regain momentum in November or December but a significant turnaround would be needed to shift market expectations," says Kathy Lien, managing director at BK Asset Management.

The decline in the dollar reflects the growing belief that the first rate hike will be in 2016 and not 2015.  

Fed fund futures are now pricing in 29% chance of a rate rise in December versus 35% before the retail sales report.