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U.S. initial jobless claims unexpectedly rose by 219K, helping the Pound-to-Dollar exchange rate (GBP/USD) to a fresh two-month best.
New U.S. data confirms the economy is coming off the boil, prompting a softening in U.S. bond yields and the Dollar as investors look forward to further interest rate cuts at the Federal Reserve.
GBP/USD extended gains to 1.2648 following news U.S. jobless claims unexpectedly hit 219K, presenting dollar buyers with their best exchange rate in two months.
"U.S. initial jobless claims unexpectedly rose by 219,000, fueling speculation of a potential slowdown in the labour market. Although the Fed's recent comments have mentioned a resilient labour market as a driver for keeping rates on hold, sustained increases in jobless claims could push policymakers toward a looser stance, further weighing on the U.S. dollar," says David Eng, Investment Advisor at Harbourfront Wealth.
"Sterling continues to rise against its peers as strong wage and inflation data contrast with a weakening US macro outlook. GBP/USD climbed to $1.2660, on track for a third consecutive weekly gain, while lower oil and gas prices have supported the energy-dependent pound," says Boris Kovacevic, Global Macro Strategist at Convera.
The short-term upward trend in GBP/USD is growing in strength, with the pair breaking above 1.26 resistance and the Relative Strength Index increasing to 63.64, confirming growing momentum.
"The US dollar’s early year outperformance has now unwound, reconnecting FX levels back with shorter term rate differentials," says Nicholas Kennedy, FX Strategist at Lloyds Bank.
The Dollar entered 2025 with a head of steam as markets prepared for punitive tariffs to be enacted by newly installed President Donald Trump and an exceptional U.S. economic growth pulse.
With the worst-case tariff scenarios off the table and data showing a cooling growth impulse, the Dollar is softening.
"The Greenback is now at its lowest level this year, down 3.4% since its January peak. As we have previously noted, dollar bulls would need either continued tariff implementation by Trump or stronger macroeconomic data for a sustained rebound," says Kovacevic.
However, Kennedy adds that "the underlying fundamental drivers of the USD’s bull run remain intact. That leaves things in a bit of a holding pattern."
A new FX market assessment by TD Securities also says it is too soon to bet against the U.S. Dollar. "Trust your gut and stay long the USD," says Mark McCormick, Head of FX Strategy at TD Securities.
The strategist adds that "while the USD is off the latest highs, this drawdown is a dip-buying opportunity, not the start of a reversal."
TD Securities thinks the recent pullback by USD has cleaned out the risk premium and brought positioning back to more neutral levels.
"Our models are starting to show a USD discount now. Furthermore, the USD has macro tailwinds, including relatively strong macro signals backed by MRSI. We also think markets are too optimistic on tariffs and the dislocation of GeoMacro uncertainty and global macro volatility could lead to greater stress. That's broadly USD bullish," explains McCormick.