British GBP/USD: USD Slips as GDP Data Misses Target (But Jobs Data Gives Hope)
The US dollar exchange rate complex came under fresh selling pressure following the release of below-par US economic growth data.
US GDP numbers have only served to undermine confidence in the US dollar which continues it’s multi-week move lower.
Against the pound, the dollar was seen slipping allowing the GBP/USD exchange rate to press higher towards 1.4565.
The euro was also seen pressing higher and is quoted at 1.1346 at the time of writing.
We see the EUR/USD as likely maintaining ground towards the upper end of its recent ranges.
The US dollar index - a broad measure of overall USD health - has meanwhile slipped by half a percent to reach 93.82, the lowest level since August 2015.
"Despite the Fed’s best efforts to leave the door open for a hike at the next meeting, today’s GDP data risks blowing it firmly shut," says Tom Floyd, Senior Sales Trader at Foenix Partners.
The data showed a rise of just 0.5% in the first quarter versus expectations of a rise of 0.7%. This is virtually on a par with the UK's rate of expansion reported yesterday.
This undermines the more hawkish Fed tone from last night and does little to justify an imminent raise.
The dollar's longer-term weakness is owed to the US Federal Reserve which confirmed this week it is unwilling to take an aggressive stance on interest rates, thus depriving the dollar on the required investor inflows needed to see it move higher.
Investors are ultimately yield chasers, and higher US rates are to their liking. In short, there are better rates elsewhere in the world and dollars will flow accordingly.
“Although the Fed dropped language acknowledging global risks it is worth noting the next meeting is only 8 days before the next major global risk event, the Brexit vote,” says Floyd.
In light of the soft data and the looming referendum, Foenix partners believe a June hike is looking increasingly unlikely with Janet Yellen’s attempts to convince markets to the contrary becoming largely futile.
While the outlook for the British pound is certainly less assured, owing to the EU referendum, the prospect of lower-for-longer US interest rates will certainly give GBP more breathing space.
We could therefore see the currency pair settle into a holding pattern over coming weeks although others do warn that a decline to 1.35 remains possible.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3345▲ + 0.14%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.2891 - 1.2944 |
**Independent Specialist | 1.3158 - 1.3211 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
But, Labour Market Still Going the Right Way
Despite the slowdown in economic growth figures, the economy continues to add jobs.
Initial jobless claims rose to 257k in the week ending April 23 (previous: 247k), in line with market expectations for a reading of 259k.
The Labor Department cited no special factors.
This week’s number brought the four-week moving average of initial claims down to 256k, previous: 261k.
Continuing jobless claims for the week ending April 16, the survey week for the April employment report, fell 5k, to 2.130mn from 2.135mn. The four-week moving average ticked down to 2.157mn, and the insured unemployment rate was unchanged at 1.6%.
“Initial claims remain near their lowest level since 1973, and continuing claims are the lowest since about 2000. The level of the series indicates that the labor market remains healthy, especially on the separations side of the market,” says Rob Martin at Barclays in New York.
Furthermore, the decline in continuing claims from the March to April survey week indicates that the April employment report will likely indicate solid job growth at the start of Q2.
If this trajectory in the labour market continues, then maybe the US Fed could raise rates in June after all.
