GBP USD Exchange Rate Gains Subdued by Soft Data 

The pound floated higher against the dollar on Wednesday, its gains tethered by yet more soft economic indicators, underscoring economic issues. 

Confidence among British employers about hiring and investment is at its lowest since the depths of the pandemic due to decades-high inflation and an acute shortage of workers; a survey showed on Wednesday. 

The Recruitment and Employment Confederation’s (REC) measure of hiring and investment confidence dropped to -13 in the three months to June – the lowest reading in two years and down from -7 in the three months to May. 

Neil Carberry, chief executive of the REC, said that the new report clearly demonstrates the impact of rising inflation and labour shortages on the country’s businesses. 

British shops and supermarkets increased prices by 4.4% from 12 months to July – the most significant rise since at least 2005. This increase marked a leap from a year-on-year rise of 3.1% in June, according to the British Retail Consortium’s (BRC) shop price index. 

The BRC’s Helen Dickinson said households and firms “must prepare for a difficult period as inflationary pressures hit home.” 

A slew of recent weak data intensified pressure on the Bank of England to increase the pace of its policy tightening next month. 

Fed rate announcement looms

The dollar broadly consolidated on Wednesday ahead of the Federal Reserve’s eagerly awaited interest rate announcement later in the day – pushing GBP USD higher. 

Bookings at US factories for durable goods – items supposed to last at least three years – unexpectedly jumped last month, fuelled by a surge in defence aircraft and sustained demand for equipment. 

Orders for long-lasting goods rose 1.9% in June following an 0.8% advance in May; Commerce Department figures showed Wednesday – the figures unadjusted for inflation. 

Looking ahead

The conclusion of the US central bank’s two-day policy meeting on Wednesday will likely deliver another 75 basis points (bps) interest rate hike to rein in rising prices. 

Money markets indicated a slim chance of a more significant 100 bps hike. Investors expect the Fed to lift borrowing costs as high as 3.4% this year to help pull inflation back to target. 

Initial jobless claims for the week ended 22 July and annualised gross domestic product (GDP) for the second quarter hit the headlines in the US on Thursday. The GDP estimate expects to show the world’s largest economy remained precariously balanced between April and June, stoking recessionary fears. 

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