GBP/USD hovers above 1.3550 ahead of US Nonfarm Payrolls

GBP/USD holds gains near 1.3616, the highest since February 2022.
US Nonfarm Payrolls is expected to have added 130,000 jobs in May.
GBP receives support as Trump granted temporary relief to UK exporters from steep 50% US tariffs on steel and aluminium.

Akhtar Faruqui FXStreet

GBP/USD maintains its position near 1.3616, the highest since February 2022, which was recorded on June 5. At the time of writing, the pair is trading around 1.3570, with little moves ahead of labor market data from the United States (US).

The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is trading higher at around 98.80 at the time of writing. The upcoming US Nonfarm Payrolls is expected to have added 130,000 jobs in May, below the 177,000 increase in April. The Unemployment Rate is also expected to hold steady at 4.2%.

Weekly Initial Jobless Claims rose to 247,000, above the expected 235,000, as data released by the US Department of Labor on Thursday. Wednesday’s US ADP private sector employment rose 37,000 in May, against a 60,000 increase (revised from 62,000) recorded in April, far below the market expectation of 115,000.

UBS' economist Paul Donovan noted that the Federal Reserve (Fed) Chairman Jerome Powell faces challenges in deciding on monetary policy amid increased uncertainty US economy. The risk of policy error increases as Powell insists on data dependency. Policy operates with a lag, and real-time data, which is unreliable and normally a bad option.

The GBP/USD pair receives support as the Pound Sterling (GBP) finds support amid increased risk sentiment in the United Kingdom (UK) markets following US President Donald Trump’s executive order signed on Tuesday. UK exporters still face the previous 25% tariff rate as Trump granted temporary relief to the UK from the steep 50% US tariffs on steel and aluminium.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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