GBP/USD Exchange Rate Reverses Downtrend on Poor US Employment Data
(Updated 17:00, 08/10/2021) The Pound (GBP) recouped some of its losses against the US Dollar (USD) this afternoon as US employment data missed expectations by 306K. Nonfarm employment is down by 5 million – or 3.3% – from pre-pandemic levels, with declines in public education and healthcare sector jobs weighing upon last month’s figure.
The latest data means that the Federal Reserve could be less likely to go ahead with tapering its bond buying programme in November, as worse-than-expected job creation data may lead the Fed to alter its forward guidance. The possibility has generated a bearish bias amongst investors.
However, with the US unemployment rate dropping from 5.2% to 4.8%, traders may look past today’s headline payroll figure: after August’s figure was upwardly revised to 366K, there is speculation that September’s data may also be revised up.
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Pound US Dollar Exchange Rate Slides on French Backlash, Fed Optimism Supports US Dollar
The Pound US Dollar (GBP/USD) exchange rate has sunk slightly this morning as the UK faces fresh headwinds over fishing rights. Meanwhile, the US Dollar (USD) is trading up against the majority of its peers, as a risk-off mood and widespread optimism over Fed tapering buoy the ‘Greenback’.
At the time of writing, GBP/USD is trading at $1.3606, down marginally on today’s opening levels.
Pound (GBP) Suffers on Comments from French Minister
The Pound (GBP) is trading in a mixed range against its peers today as tensions with France over fishing rights weigh upon sentiment, alongside a risk-off market mood.
French politicians expressed outrage earlier this week as the UK refused three-quarters of license applications for small boats to fish in British waters: in a recent development, French MP Jean-Pierre Pont has suggested tearing up the Touquet Treaty.
The treaty allows British border checks to be carried out in France: it was signed in 2003 on the understanding that both Britain and France would set up immigration control points at the border of the other.
Pont’s proposal would likely see a return to scenes of stowaway migrants only being stopped once they reached Britain, where they could claim asylum. But failure to take such a drastic measure could, Pont warns, risk furious fisherman taking the law into their own hands.
‘[The fishermen] are all furious and prepared to do everything to get the Brexit accords respected… When there are agreements, one must respect them all.’
Under the Brexit deal, French fishermen were told they would still be allowed access to UK waters as long as they could provide evidence they have fished there in the past. French officials have accused the UK of reneging on this promise.
So long as tensions continue, the Pound is likely to come under further downside pressure.
US Dollar (USD) Gains as Hawkish Fed Expectations Buoy Sentiment
The US Dollar has firmed this morning as investors harbour optimistic expectations for new forward guidance from the Federal Reserve.
Markets have begun to price in a possible rate hike in 2022 amidst worries that the recent surge in crude oil / energy prices could stoke inflation. If nonfarm payrolls print as expected this afternoon, traders also hope that the positive data will be a catalyst for a November tapering announcement.
Also supporting the ‘Greenback’, the US treasury yield bonds have extended their strong rally, underway since late September when the Fed signalled that it would begin tapering its bond purchases by the end of 2021.
Investors remain encouraged by the prospect of a potential deal to avoid a default on US government debt: Republicans and Democrats in Congress agreed yesterday to consider a stop-gap measure that would extend the borrowing limit until December.
The bill will now be sent to the House of Representatives for approval before it can be sent to President Joe Biden for his signature.
GBP/USD Exchange Rate Forecast: Nonfarm Payrolls to Drive Movement?
Looking ahead, US releases are likely to drive movement in the Pound US Dollar exchange rate going forwards, given the lack of UK data.
This afternoon’s nonfarm payrolls release for the month of September is expected to hold particular significance, given the Fed’s stipulation that employment must be stable before further policy action could be taken.
If the data prints as expected, the US Dollar is likely to enjoy tailwinds.