Sterling avoided a potentially ruinous pitfall yesterday as the Bank of England voted against any changes to the benchmark interest rate or the asset purchasing target. But a strong US Non-farm Payrolls Report later on today could send the Pound to US Dollar exchange rate to a fresh two-and-a-half year low.
Analysts predict that the Non-farm Payrolls Report will show a rise of 163,000 workers in February, following January’s improvement of 157,000. However, with the ADP Employment Change figure rising to 198,000 – 28,000 higher than the anticipated score of 170,000 – already this week, there is a good possibility that the NFP print could exceed analysts’ expectations.
A 6.3% acceleration in Non-defense Capital Goods Orders (excluding aircrafts) when just 0.0% was anticipated, and a 1.8% increase in Building Permits when 1.2% was expected, also appear to support a robust NFP result.
The US Non-farm Payroll figure is a measure of employment change that does not include the agricultural sector. It is the most important measure of job creation and is considered to be the benchmark figure for the US labour market. For this reason a strong reading could push the Fed into slowing down their expansive asset purchasing programme.
The Federal Reserve is currently pumping around $85 billion of electronic money into the US economy each month in an effort to drive unemployment lower and boost US growth higher. This large influx of new cash is having the inflationary effect of diluting the money supply in the US, which is having a negative impact on demand for the US Dollar.
However, the US Dollar has remained incredibly resilient against the Pound, as issues of economic concern in Britain have betrayed the UK currency. GBP/USD struck a two-and-a-half year low of 1.4984 this week as the threat of further monetary easing from the Bank of England spooked investors out of the downtrodden Pound.
In recent weeks the UK has been stripped of its coveted AAA credit rating by Moody’s, Construction data has pointed towards further economic weakness, and the Manufacturing Industry has also posted declines. Fears that Britain could slide into an unprecedented triple-dip recession are holding Sterling back, whilst global concerns regarding the ‘sequester’ of spending cuts in the US are propping the US Dollar up.
The only silver linings in Sterling’s recent mist of uncertainty have come from the stronger-than-anticipated Service Sector print and the Bank of England’s omission of further monetary easing this month.
The Pound to US Dollar exchange rate (GBP/USD) is currently stumbling around just above the 1.5000 mark. A soft US Non-farm Payrolls Report could give Sterling the impetus it needs to make a run towards technical resistance at 1.5124, but a strong print has the potential to push the Pound lower into unchartered two-and-a-half year lows.
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