Pound Sterling weakens against US Dollar after upbeat US NFP report


  • The Pound Sterling faces an intense sell-off against the US Dollar after upbeat US NFP data for May.
  • Strong US NFP report has negatively impacted expectations for Fed interest-rate cuts in September.
  • The UK’s strong wage growth remains a major driver of stubborn service inflation.

The Pound Sterling (GBP) falls vertically from 1.2800 against the US Dollar (USD) in Friday’s New York session. The GBP/USD weakens as the United States (US) Nonfarm Payrolls (NFP) report for May showed that labor market conditions remain tight even though the Federal Reserve (Fed) is maintaining a restrictive monetary policy framework for a longer period.

The employment report showed that employers added 272K payrolls, higher than the estimates of 185K and the prior release of 165K, downwardly revised from 175K jobs. However, the Unemployment Rate rose to 4.0% while investors expected it to remain steady at 3.9%. Meanwhile, Average Hourly Earnings data, which gauges wage growth momentum, jumps to 4.0% from the consensus of 3.9% and April's reading of 4.0%, upwardly revised from 3.9% annually. On a monthly basis, wage growth rose at a faster pace of 0.4% than estimates of 0.3%

Daily digest market movers: Pound Sterling underperforms the US Dollar

  • The Pound Sterling delivers a perpendicular fall to 1.2720 against the US Dollar as US NFP grew at a faster pace than what investors anticipated earlier. Stronger-than-expected wage growth and payroll data have diminished expectations that the Fed will start reducing interest rates from the September meeting.
  • Recently, many labor market-related economic indicators had pointed to normalizing job conditions, which prompted market speculation for the Fed to begin lowering its key borrowing rates in September. The US JOLTS Job Openings data for April and ADP Employment Change for May showed that fresh openings and private payrolls, respectively, were lower than expected. Also, the US Department of Labor said on Thursday that Initial Jobless Claims for the week ending May 31 increased more than expected. This adds to evidence that the labor market is losing strength.
  • However, upbeat US NFP report has indicated that the labor market remains strong. This has led to a sharp decline in Fed rate-cut expectations. The CME FedWatch tool shows that traders see a 54% chance for rate cuts in that month,  down from 68% after the US NFP report release.
  • In the United Kingdom, the Pound Sterling will be guided by the Employment data for the February-April period, which will be published on Tuesday. The country’s number of employed people has declined for three consecutive times. Indication of more layoffs would hurt the Pound Sterling as it would boost traders’ bets for early rate cuts by the Bank of England (BoE). 
  • Investors will also focus on the UK Average Earnings data, a measure of wage growth. UK’s strong wage growth momentum has remained a major driver to high service inflation, which has been a barrier for price pressures in returning towards the 2% target.

US Dollar Prices for this week

US Dollar PRICE Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the New Zealand Dollar.

  USD EUR GBP JPY CAD AUD NZD CHF
USD   0.57% 0.47% 0.78% 0.34% 0.91% 0.95% 0.78%
EUR -0.57%   -0.08% 0.19% -0.23% 0.34% 0.46% 0.21%
GBP -0.47% 0.08%   0.28% -0.15% 0.42% 0.54% 0.28%
JPY -0.78% -0.19% -0.28%   -0.42% 0.13% 0.21% 0.02%
CAD -0.34% 0.23% 0.15% 0.42%   0.57% 0.69% 0.44%
AUD -0.91% -0.34% -0.42% -0.13% -0.57%   0.11% -0.10%
NZD -0.95% -0.46% -0.54% -0.21% -0.69% -0.11%   -0.24%
CHF -0.78% -0.21% -0.28% -0.02% -0.44% 0.10% 0.24%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Technical Analysis: Pound Sterling falls below 78.6% Fibo retracement

 

The Pound Sterling falls sharply against the US Dollar after US NFP data for May appears to be stronger than expected. The GBP/USD pair near-term outlook turns volatile as it drops below 1.2770, the 78.6% Fibonacci retracement support (plotted from the March 8 high of 1.2900 to the April 22 low at 1.2300).

The Cable still holds the bullish trajectory as the 20-day and 50-day Exponential Moving Average (EMA) at 1.2710 and 1.2650, respectively, are sloping higher, indicating a strong uptrend.

The 14-period Relative Strength Index (RSI) has dropped into the 40.00-60.00 range, suggesting that the momentum which leaned toward the upside has faded for the time-being

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.

Read more.

Next release: Fri Jun 07, 2024 12:30

Frequency: Monthly

Consensus: 185K

Previous: 175K

Source: US Bureau of Labor Statistics

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.

 

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