Pound to US Dollar (GBP/USD) Exchange Rate Holds Onto Gains on Mixed US Data

The Pound (GBP) widely held onto gains against the US Dollar (USD) to remain trading close to a six-year high as positive employment data supported the UK currency and as mixed data of the United States weighed on the Buck.

Earlier in Wednesday’s session ‘Cable’ was buoyed by the release of employment data which showed that the number of UK citizens in work climbed to a record high of 73.1% in the three months to May.

According to the Office for National Statistics the nation’s unemployment rate fell to 6.5% and showed that the economy is creating jobs at an unprecedented speed.

Following the data release the Pound briefly climbed to a six year high against the US Dollar and advanced to a fresh 22-month high against the Euro (EUR). Those gains were short-lived however as the currency was softened by a separate report which showed that wage growth remains weak.

Despite that expectations that the Bank of England could raise interest rates as soon as November this year supported Sterling.

‘The slack in the labour market continues to be eroded and inflation pressures will gradually increase. Consequently, we favour a rate hike in November,’ said James Knightly, an economist at ING.

Also adding support to the Pound was a separate report which showed that the number of people claiming unemployment benefit fell by 36,300 to 1.04 million in May marking the 20th consecutive month where the number of claimants has fallen.

The US Dollar was little changed against the Pound due to the release of mixed economic data which dented some of the optimism created by Federal Reserve Chair Janet Yellen’s comments to Congress. Early in the session the ‘Greenback’ found support after Ms Yellen hinted that the Fed could raise interest rates sooner than expected if the economy continued to perform strongly. The mixed data released today however dented some of that optimism.

Producer Price inflation in the world’s largest economy increased in June with gains being recorded across most areas. According to the Washington based Labour Department its PPI Index increased by 0.4%, beating analyst expectations for a rise of 0.2%.

Any positivity from that data was knocked however after a separate report showed that industrial production rose by a seasonally adjusted figure of 0.2%, disappointing economists who had hoped for a rise of 0.4%.

‘US Industrial production rose 0.2% month on month in June, a touch lower than the 0.4% consensus expected, while May’s initial 0.6% month on month reading was revised lower to 0.5%. This is a mildly disappointing outcome, but shouldn’t have much of a market impact. In any case we expect to see stronger numbers in the months ahead,’ said Mr Knightly from ING.

The ‘Greenback’ could make gains tomorrow if the latest jobless claims data comes in strongly, if it does, then speculation over a rate rise will likely increase to the benefit of the currency.