Pound US Dollar Exchange Rate Rangebound Following Significant Data

Key Points:

• GBP/USD stuck in range amid UK, US data.
• UK Spring Budget prompts BoE rate cut speculation.
• US Dollar dips, non-farm payrolls data anticipated.

The Pound US Dollar (GBP/USD) exchange rate remained trapped in a narrow range on Wednesday despite notable data releases in the UK and the US.

At the time of writing Cable was trading at around $1.2729, up roughly 0.2% from Wednesday’s opening rate.

Pound (GBP) Exchange Rates Fluctuate following UK Spring Budget

The Pound (GBP) wavered in a narrow range on Wednesday, but softened against its more risk-sensitive peers, following the release of the UK Spring Budget.

UK Chancellor, Jeremy Hunt, unveiled his Budget and addressed Parliament on Wednesday, where he delivered a plethora of expected tax cuts.

Hunt confirmed a 2p cut to national insurance as anticipated, and explained that combined with the Autumn Statement, it has slashed the main rate of Employee NICs by a third, giving workers and an average of £900 more per year.

The statement also touched on forward guidance surrounding inflation, and an excerpt from the statement read:

‘With the independent Office for Budget Responsibility (OBR) confirming inflation is set to fall to target a year earlier than previously expected, wages rising consistently and the economy outperforming European neighbours, the Chancellor said he would stick to the plan to improve living standards by rewarding work and growing the economy.’

With CPI now forecast to have cooled to 2% in just two months, this could renew upcoming Bank of England (BoE) interest rate cut speculation, and in turn dent GBP exchange rates.

US Dollar (USD) Exchange Rates Tumble Amid Upbeat Trade and Fed Comments

The US Dollar (USD) plummeted against the majority of its peers on Wednesday as the safe-haven Dollar was undermined by a bout of cheery trade.

Further hobbling the ‘Greenback’s’ trade was an array of mixed messages from the Chief, Jeremy Powell, which left markets speculating on when the bank will begin cutting interest rates.

With Powell’s rhetoric echoing the central bank’s recent data-driven approach, limited further guidance was provided as he addressed U.S. lawmakers.

Powell said:
‘If the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year. But the economic outlook is uncertain, and ongoing progress toward our 2% inflation objective is not assured.’

Additionally weighing on USD on Wednesday were the latest US Jolt jobs openings.

The number of job openings in the US decreased by 26,000 from the previous month, to 8,863 million in January 2024, and marked the lowest level in three-month period.

GBP/USD Forecast: US Non-Farm Payrolls to Boost USD?

Looking ahead, the primary catalyst of movement for the Pound US Dollar exchange rate on Friday is likely to be the latest US non-farm payrolls data.

The index is expected to report that the US economy added 200,000 jobs in February, slightly down from January’s forecast-beating 353,000 jobs. January’s data marked the biggest rise in employment in a one-year period and pointed to a tight labour market.

Should the data match expectations and confirm another strong increase in jobs in February, this may bolster USD exchange rates at the end of the week.

US unemployment for February is also scheduled for Friday. With domestic unemployment forecast to remain at 3.7% for this reading, should the data confirm that unemployment held steady, this may also offer the ‘Greenbank’ some support.

Turning to the Pound, a lack of economic data in the upcoming days may leave Pound Sterling vulnerable to market sentiment, as markets continue to digest the UK’s Spring Budget and its economic implications.