Will Faster Pace of UK Wage Growth Trigger GBP/USD Exchange Rate Rise?
The Pound (GBP) has traded in a narrow range against the US Dollar (USD) today, hitting an exchange rate of $1.3211.
This is close to the worst exchange rate of the week and comes before further potential losses when the UK government’s Brexit plans are revealed later today.
Looking beyond this potential turbulence, the Pound to US Dollar exchange rate (GBP/USD) could make gains on the coming Tuesday when UK jobs data is released.
GBP traders will be focusing on Tuesday’s average earnings data for May, which is tipped to show a faster pace of wage growth with and without bonuses included.
Such results could boost confidence levels among Pound Sterling traders and caused an early-week GBP/USD exchange rate rise.
A faster pace of wage growth would imply UK economic resilience and could raise hopes for a Bank of England (BoE) interest rate hike in the coming months.
US Dollar to Pound (USD/GBP) Exchange Rate Rally Forecast on Today’s Inflation Rate Acceleration
The US Dollar (USD) has been static against the Pound (GBP) today, although there could be an advance this afternoon when high-impact US inflation rate data comes out.
June’s readings are predicted to show significant growth for the month-on-month and year-on-year stats, which could cause the US Dollar to rise sharply.
Higher inflation is likely because of the impact of US trading tariffs, which have driven up costs for consumers due to fewer (or more expensive) imports.
While bad news for US households, higher inflation rates could still boost US Dollar demand because they would increase the odds of a near-term Fed interest rate hike.
The US Federal Reserve is on track to raise interest rates twice more before the end of 2018 and higher inflation would increase the pressure to act.
If today’s inflation data disappoints USD traders and shows an unexpected decline during June, then the US Dollar could make losses against the Pound.
Will USD/GBP Exchange Rate Struggle if Trade Wars Worsen?
Looking beyond today’s inflation rate stats, the US Dollar to Pound (USD/GBP) exchange rate could also be affected in the future by trade war developments.
The most prominent of these is the US-China economic clash, although the US is also engaged in tariff action against the EU, Mexico and Canada.
Given the potential for long-lasting economic damage to the US, these trading conflicts could cause damage to the USD/GBP exchange rate.
Warning about how the trade war could swing against the US, Yale University Senior Fellow Stephen Roach said:
‘[Trade wars are] easy to lose, and the US is on track to lose this trade war. This is live ammunition. This is not just rhetorical discussion any more.
‘We’re in the early stages of fighting skirmishes in a real, live trade war. The question is, how far does it go? And how significant will the ammunition be in the future?
‘The US is hugely dependent on China as a source for low-cost goods to make ends meet for American consumers.
‘We’re hugely dependent on China to buy our Treasuries to fund our budget deficits, which as you know, are getting larger.’
If Mr Roach’s fears prove justified and the US does start to suffer in consequence of trade tariffs then the US Dollar to Pound (USD/GBP) exchange rate could decline.
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