The exchange rate of various currency pairs in the forex market is influenced by a multitude of economic factors that potentially increase their demand and supply in the market. Two of such factors that investors often paid great attention to are the Gross Domestic Product (GDP) and unemployment rate numbers for each country.
Positive GDP growth, for instance, can influence investors to buy a given currency using different trading platforms like eToro, Capital.com, Plus500 trading broker, and so on. While a negative GDP often caused investors to sell off their holdings. In this article, we shall examine these two important factors and their impact on the exchange rate for GBP/USD currency pairs.
UK GDP and Employment Numbers – Where Does it Leave the GBP/USD?
The UK economy grew by 0.2% in April, aligning with the general market expectations for positive growth after contracting by 0.3% the previous month.
The British pound has therefore witnessed a major rebound during the second quarter following the positive GDP growth that started in April. The growth in the UK economy came as a result of the strong growth in both the retail and industrial sectors.
On the other hand, the UK unemployment rate fell to 3.8% in April, after testing a year’s high at 3.9% the previous month. The result has been much better than the market expectations of 4.0%.
Overall, the positive growth in the UK’s GDP in April, as well as the reduction in its unemployment rate are both positive factors that have favored the British pound resulting in a strong bullish trend for GBPUSD.
In what ways do the GDP and Employment rate data influence GBPUSD?
The growth in UK GDP recorded in April is indeed a positive sign for the British pound. As a result, the Pound strengthened relative to the US dollar (USD) rising to a year high at 1.28467 in June 2023.
The bullish trend for GBPUSD is supported by the fact that investors tend to seek higher returns and increased investment opportunities in a growing economy, thereby increasing the demand for GBP.
Conversely, a weak GDP figure leads to a depreciation of a country’s currency value as is the case with the US dollar compared to the pound.
Employment rate numbers and GBPUSD:
The employment rate numbers, also known as the unemployment rate, play a significant role in influencing the GBP/USD exchange rate. The unemployment rate and non-farm payrolls provide insights into a country’s labor market health. Lower unemployment rates and robust job creation are generally associated with a strong economy and can contribute to currency appreciation.
In the case of the GBP/USD currency pair, positive employment numbers in the UK, evidenced by the declining unemployment rate or higher-than-expected job additions, could further be said to have bolstered the GBP. A tight labor market indicates a strong economy, suggesting that businesses are expanding and hiring new workers, fostering consumer spending and overall economic growth. This has led to an increase in demand for GBP, driving its value higher against the USD.
On the contrary, the unemployment rate in the US climbed to 3.7% in May, marking its highest level since October 2022. This has resulted in a weak US dollar favoring the pound.
Conclusion
The GDP and Employment rate data are two important factors that investors monitor closely when choosing to invest in a given currency pair. The positive growth in the UK GDP has influenced investors to buy GBPUSD rather than sell off their holdings. While the increase in the US unemployment rate has weakened the US dollar against the pound. Investors need to carefully understand the impact of these two factors before moving to trade GBPUSD.