British pound slides against dollar as jobs data shows US economy holding up

Pound slips against dollar as new jobs data shows US economy holding up

  • The pound slid as low as $1.249 on expectations the Fed would continue to hike rates
  • Rising interest rates encourage saving rather than spending
  • 390,000 additional jobs were created in the United States in May

The pound slipped against the dollar as new jobs data showed the US economy was holding up solidly.

The pound slid to $1.249 as the US central bank, the Federal Reserve, was expected to continue raising interest rates.

According to the latest figures, 390,000 additional jobs were created in the United States in May, more than the 325,000 expected and with “notable gains” in the leisure and hospitality sectors, indicating that households continue to spend.

Slippage: The pound slid to $1.249 as the US central bank, the Federal Reserve, was expected to continue raising interest rates

This will bolster expectations that the Fed will continue its aggressive rate hikes to combat runaway inflation. Rising rates provide an incentive to save rather than spend, which helps cool prices, but can also lead to a drop in economic activity.

Still, the U.S. unemployment rate is 3.6% — just slightly above its pre-pandemic levels — suggesting the Fed will have room to keep pushing rates higher.

Traders flocked to the dollar, leaving the pound behind. Experts fear the pound will have a tough year as attempts by the Bank of England to raise rates further are thwarted by the risk of a recession.

John Hardy of Saxo Bank said his outlook for the pound was the worst of any currency in the wealthy group of G10 countries. He said: “We believe the UK is one of the economies at the cutting edge of recession risk.

“There’s the rising cost of energy, and because of Brexit you have restrictions on the supply of labour.

“So the potential for growth has been limited by the labor market, energy prices and the government is trying to cut spending.”

These would limit how far the Bank of England could raise rates, he added.

Societe Generale’s Kit Juckes said it was “difficult to find anything positive” to say about the UK’s economic forecast.

Russia’s shutting off the gas tap to Europe could cause a recession in Germany and other European countries, and push more investors into the ‘safe haven’ of the dollar, further weakening the pound.

But Laith Khalaf, an analyst at AJ Bell, said predictions of “the pound doomsday are a bit of a stretch”.

Khalaf said: “The real sting in the tail of British consumers is that a weaker pound is making the inflationary problem worse, as it will drive up the price of those all-important imports, from oil and gas to food and clothing. “

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