GBP/USD Forecast: Pound to US Dollar Exchange Rate Driven Lower as US Payrolls Surge

March 5, 2021 – Written by Frank Davies

Pound (GBP) Exchange Rates Slip Thanks to Disappointing UK House Price Growth

As the Halifax house price index failed to show positive growth on the month this left the Pound to US Dollar (GBP/USD) exchange rate trending lower.

Following on from January’s -0.4% contraction the index dipped another -0.1% last month, suggesting a sustained decline in the housing market.

As the UK housing market had previously helped to limit the impact of Covid-19 disruption on the economy this weakness weighed heavily on demand for the Pound on Friday.

The relative strength GBP exchange rates had experienced over the course of the week also left the Pound vulnerable to correction selling, with the currency having gained significant ground on hopes of a nearer economic recovery.

US Dollar (USD) Exchange Rates Rally on Fresh Signs of Labour Market Strength

The mood towards the US Dollar improved sharply ahead of the weekend as February’s non-farm payrolls report bettered forecast.

Even though investors had expected to see a solid increase in payrolls on the month the jump to 379,000 caught markets off guard.

This offered USD exchange rates a strong boost across the board as worries over the outlook of the US labour market diminished.

As the improvement also drove the corresponding unemployment rate down from 6.3% to 6.2% this added to the bullish mood of the US Dollar.

Although disruption stemming from the ongoing pandemic could continue to put pressure on the labour market for some months to come this was not enough to dampen the impact of this strong payrolls report.

A widened trade deficit also failed to limit the appeal of the US Dollar at this juncture, in spite of further trade deterioration likely to come.

GBP/USD Exchange Rate Forecast: Higher US Inflation May Add to Weakness

With fresh UK data releases thin on the ground next week the GBP/USD exchange rate may struggle to find any rallying points in the near term.

On the other hand, the appeal of the US Dollar could improve further if February’s inflation data strengthens as anticipated.

Signs of growing inflation pressure within the world’s largest economy may give the Federal Reserve greater cause for optimism in the months ahead, limiting the risk of any future policy loosening.

However, if the inflation rate fails to move closer to the Fed’s 2% target this could take some of the wind of the US Dollar’s sails on Wednesday.

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TAGS: Pound Dollar Forecasts