Pound US dollar (GBP/USD) exchange rate slumps as US non farm payrolls smash forecasts

Pound US dollar (GBP/USD) exchange rate slumps as US non farm payrolls smash forecasts

Article updated 13:57, 7/6/2024:

The pound US dollar (GBP/USD) exchange rate is sliding this afternoon, following the latest US non farm payrolls data.

In May, 272,000 jobs were added to US payrolls, significantly above expectations of a 185,000 figure.

This prompted speculation that the Federal Reserve may not cut interest rates multiple times this year.

Due to a robust economy and strong employment, the Fed has more room to keep rates elevated to ensure inflation stays down.

Furthermore, the data is prompting a rally in US Treasury bond yields, further lifting the US dollar (USD).

At the time of writing, GBP/USD is trading at around US$1.2735, a fall of roughly 0.4% from today’s opening rates.

Original article continues below:

Pound US dollar exchange rate quiet ahead of US non farm payrolls data

The pound US dollar exchange rate is narrowing this morning, as investors await the latest US non farm payrolls release.

At the time of writing, GBP/USD is trading at around US$1.2785, showing little movement from the morning’s opening rates.

US dollar (USD) tepid ahead of non farm payrolls release

The US dollar (USD) is wavering this morning, as markets anticipate the latest non farm payrolls data.

The number of jobs created is forecast to increase from a reading of 175,000  in April to 185,000 in May. Last month’s reading was significantly below forecasts – and as this month’s is expected to show a slight increase, it may weigh on the ‘greenback’.

Additionally, while this figure could show an increase, it may be more indicative of a broader trend across the US labour market.

Frantisek Taborsky, EMEA FX & FI Strategist at ING, explains:

‘As always, the payrolls are a bit of a lottery, but the last few days of labour market numbers confirm that we are on an easing labour market trajectory. While the median estimate for payrolls is +185k, there is a slight preference seen for a rather weak number if anything.’

This may pave the way for the Federal Reserve to begin unwinding its monetary policy. Cooling employment could have an adverse effect on the US economy, which the Fed may wish to avoid.

As such, the data could spark increased Fed rate cut bets, which could weaken the US dollar later today.

Pound (GBP) flat amid continued lack of data

The pound (GBP) is continuing its streak of muted trade today, as the lack of impactful domestic data continues.

This is leaving Sterling exposed to a mixed market mood. Due to the pound’s increasingly risk-sensitive nature, it is unable to gain a foothold against its peers.

If the mood remains mixed over today’s trade, GBP is unlikely to find much in the way of support.

Pound US dollar exchange rate forecast: UK wage data in focus

Looking ahead for the pound, the core catalyst of movement is likely to be the latest UK wage data, due on Tuesday.

In April, the UK unemployment rate is forecast to have held at 4.3%. While this could show a robust labour market, any gains for the pound may be limited by the accompanying wage growth data.

In the three months preceding April, average earnings excluding bonuses are expected to have cooled from 6% to 5.8%. This could weaken Sterling as it is considered a key inflationary pressure.

If wages continue to cool, the Bank of England may cut interest rates sooner than expected, which could dent GBP.

For the US dollar, impactful data is thin on the ground during the start of next week. This could leave the ‘greenback’ to trade in line with risk appetite.

As a safe haven currency, a shift towards downbeat trading conditions would lift USD against riskier assets. However, the reverse is also true – bullish trade may weaken the US dollar against its peers.

John Mulcahey

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