- GBP USD Exchange Rate Hovers Below 1.30 – Fails to remain above key level
- Sterling (GBP) Recovers Slightly Despite Concerns – NIESR reports UK contraction in June
- US Jobless Data Decent – Unable to strengthen US Dollar considerably
- Update: US Non-Farm Payrolls Impresses – US Dollar slips against Pound regardless
- Forecast: BoE Decision Next Thursday – Markets anticipate UK rate cut
GBP USD Exchange Rate Advances on Friday
The GBP USD exchange rate edged higher during Friday despite far better-than-expected US Non-Farm Payroll data.
With investors eager to purchase the Pound from its cheapest levels, it seemed as if nothing short of more Brexit gloom could push it to new lows.
The US Dollar was boosted against other currency rivals however, as the newest NFP report indicated that 287,000 new jobs had been created in June following a shockingly poor May.
While the June data likely missed any Brexit-influenced panic in the US job market and could have been caused by an influx of summer jobs being created, the optimistic figure relieved markets who hoped that the US economy could avoid significant Brexit damage.
Now markets look ahead to next Thursday, when the Bank of England (BoE) is due to hold its first post-Brexit policy decision meeting. Analysts are widely expecting an interest rate cut to stave off Brexit damage, which would likely cause the Pound to hit new lows against most majors.
(Published 10:02 BST 08/07/2016)
The GBP USD exchange rate fell limp after recovering just slightly on Thursday. While investors initially aimed to purchase Sterling from its cheapest levels, Brexit-influenced news, such as NIESR’s latest growth forecast, weighed heavily on Pound sentiment.
GBP/USD has recovered slightly from its worst 31-year-low of around 1.2835 (seen on Wednesday). However, the pair still remains uninspired at a low level of 1.2935 and has failed to reach 1.30 again since Thursday’s failed rally.
Sterling (GBP) Rally Falters as Brexit News Piles Up
Markets seem to feel as if the Pound is overdue for a relief rally, as it attempted one for the second consecutive day on Thursday after Wednesday’s attempted rally was largely reversed.
Sterling’s cheapest levels (with the currency at a 31 year low against the US Dollar) have made it an appealing purchase during calm market conditions – but unfortunately market calm has been scarce since the Brexit result.
Thursday was little exception, as investors bought into the Pound ahead of the latest disappointing Brexit-related news. Perhaps most vital yesterday was NIESR’s latest Gross Domestic Product (GDP) estimate.
The group estimated that while growth was at 0.6% in Q2 as expected (largely due to a strong April), the UK economy appeared to have contracted in June. The Financial Times reports;
‘May’s pullback was marginal, but June displayed signs of an “intensifying contraction across the board”, NIESR said. It predicts that official data will show declines in output across every sector except agriculture and public services.’
The news stoked fears that a June contraction could lead to the UK economy being in even worse shape from July onwards, as Brexit market panic takes hold. This is also likely to have stoked fears of a potential UK recession.
US Dollar (USD) Limp Ahead of Non-Farm Payrolls Report
After enjoying risk-off-related rallies earlier in the week, US Dollar’s sentiment ran a little low on Thursday which allowed the Pound to advance slightly.
Optimistic US jobless claims data did little to boost ‘Greenback’ sentiment. ADP’s latest employment change figure came in at 172k from 168k, and the number of new initial jobless claims was a lower-than-expected 254k.
This was slightly impressive to markets as the figure comes from the 2nd of June, meaning it appeared to have not been negatively affected by Brexit anxiety.
US markets are highly concerned that the Federal Reserve’s interest rate hike plans have been ruined by Britain’s Brexit vote, and these worries may have been validated by the FOMC’s latest minutes release on Wednesday which showed a hesitance to raise key interest rates amid the possibility of a Brexit in mid-June.
US markets are heavily eyeing Friday afternoon’s highly anticipated June labour reports. May’s Non-Farm Payroll report was notable for highly disappointing investors and the Fed with its far lower-than-expected figures.
The Non-Farm Payrolls are widely seen as a key indicator for the health of the US economy, and as a result the US Dollar has been in limbo in the lead up to the report.
GBP USD Exchange Rate Forecast: NFP Report Ahead, BoE Decisions Next Week
Friday’s US session sees the release of June’s highly anticipated Non-Farm Payroll information. Notably the first since May’s disappointing set of figures, and the first since Britain voted to ‘Leave’ the EU in late-June.
While these figures are highly unlikely to reflect the effects of the Brexit vote on the US economy (with the data being collected throughout June rather than near the end of June), it will still be vital to see how the US economy has shifted since May’s disappointing figures.
Unfortunately, regardless of the result, Federal Reserve rate hike bets are likely to remain low due to concerns of how the Brexit could affect the US economy. However, a far higher than expected score could lessen bets of a Fed rate cut.
Regardless, the Pound is likely to remain weighted from recent Brexit news, though it’s current relief rally attempt would have more fire behind if the US NFP report is disappointing enough to spark a risk-on movement in the market.
Next week, the Bank of England (BoE) will finally hold its first monetary policy decision meeting since the Brexit vote.
The bank is widely expected to introduce new easing and an interest rate cut in order to stave off Brexit-related damage to the UK economy, which would cause Sterling to drop further. However, an unexpected rate freeze would instead give the Pound a strong (but brief) relief rally.
At the time of writing, the GBP USD exchange rate trended in the region of 1.2930, while the USD GBP exchange rate traded at levels around 0.7733.
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