Pound US Dollar Exchange Rate Subdued as Markets Brace for US Jobs Data

Pound US Dollar Exchange Rate Down ahead of US Non-Farms Payroll

The Pound US Dollar (GBP/USD) exchange rate dipped this morning as investors await the US non-farms payroll data.

Yesterday’s dovish comments from the Bank of England (BoE) and continued strength in USD following the Fed’s hawkish shift last month kept the Pound US Dollar pair pressured as today’s session opened.

Pound (GBP) Weakened by Dovish BoE Remarks

The Pound found itself in a weakened position this morning after yesterday’s manufacturing PMI came in below expectations and the BoE reiterated its dovish stance.

In response to warnings from departing BoE Chief Economist Andy Haldane, the central bank’s Governor Andrew Bailey defended the BoE’s dovish approach:

‘We expect this rise in inflation to be a temporary feature of the bounce-back. The reasons for taking this view are well-founded, it is not a vain hope or a matter of whistling in the wind.’

In response, the Pound US Dollar exchange rate hit an 11-week low of $1.37534, dropping again to $1.37382 over the course of the morning.

Sterling is also beset by other economic fears, including the failed attempts to reach a financial equivalence agreement with the EU and worries that the phasing-out of the government’s job retention scheme – which started yesterday – could lead to redundancies.

US Dollar (USD) Strengthens on Economic Optimism

Meanwhile, the US Dollar (USD) continued climbing against the Pound today, buoyed by yesterday’s strong economic data.

The US initial jobless claims report showed that unemployment benefits claims dropped to a new pandemic low of 364,000, beating expectations of 390,000 new claimants.

Shortly after, the ISM manufacturing PMI printed at 60.6. Despite this being below forecasts of 61 and a slight easing on the previous month’s result of 61.2, the PMI still points to a strong growth in US factory activity.

These positive reports have raised hopes among USD investors that this month’s non-farm payroll figure could also show that the US economy is rapidly recovering.

However, hopes are tempered somewhat by the fact that the figures have missed market forecasts for the last two months.

As such, the US Dollar’s upside ahead of the report may be limited, as investors are hesitant to place any aggressive bets until the figure is out.

Pound US Dollar Exchange Rate Forecast: Will Non-Farm Payrolls Turbocharge USD?

The non-farm payrolls release this afternoon has the potential to turbocharge the US Dollar, if it reports a strong employment figure.

If it does, the upside in the US Dollar may also be boosted by expectations of a more hawkish approach from the US Federal Reserve, as an upbeat outlook on the US economic recovery could prompt the bank to begin tightening monetary policy.

Yet some are concerned about the consequences if the report falls short of forecasts for the third month running.

Ipek Ozkardeskaya, senior analyst at Swissquote, said:

‘The market clearly needs a strong figure to hold on to its upbeat mood, as a surprise weakness in jobs figures wouldn’t get the Fed to do more, when inflation is hovering around a worryingly high 5% and it’s not even sure that it’s a peak.’

The Pound US Dollar exchange rate could also be impacted by UK coronavirus news. While reopening optimism may support the Pound, with the 19 July end to restrictions still set to go ahead, NHS bosses have raised concerns about a potential spike in hospital admissions. As a result, any negative covid developments could weigh on Sterling.