The British pound is higher against the US dollar on Tuesday afternoon after better than expected UK employment data dampened ideas of a cut to UK interest rates. The dollar gave up early haven gains following a virus outbreak in China to turn lower. US President Trump gave a speech at the World Economic Forum in Davos as the Senate prepares to put him on trial for possible impeachment.
GBP/USD was higher by 75 pips (+0.56%) at 1.3078 with a daily price range of 1.299 to 1.308 as of 1.30pm GMT, as the currency pair rebounded from near 2020 lows to back above the key 1.30 price level.
Expectation that the Bank of England will cut interest rates at its forthcoming monetary policy meeting in January was hampered by better than expected UK data. The positive surprise came from wages which rose 3.2%, when consensus forecasts were for a drop to 3.1%. The UK added 208,000 jobs in the three months through November with the unemployment rate holding steady at 3.8% according to the UK Office for National Statistics (ONS).
The decision by the Bank of England increasingly looks like it could be quite finely balanced. Based on the speeches from policymakers in the past two weeks (since the idea of looser policy was first touted by Governor Mark Carney) it seems feasible that 5 out of a possible 9 votes would favour a cut. Better than anticipated data like that of today could persuade just one neutral policymaker to keep interest rates steady and based on the above maths, rates would not be changed.
Returning US investors after a long holiday weekend celebrating the Martin Luther King Jr holiday were greeted with a virus outbreak in China, the first day of the Economic Forum in Davos and the beginning of the impeachment trial against US President Trump. Amidst all the news, the dollar swung in both directions, acting as a haven initially over fears over the virus, but also in reaction to the domestic political uncertainty.
