The Pound firmed against the US Dollar on Wednesday afternoon as the publication of weaker-than-forecast US economic data dented demand for the ‘Greenback’.
The US currency however continued to receive some support from safe haven demand ahead of tomorrow’s European Central Bank policy meeting.
The ‘Greenback’ fell after data released by Payroll processing firm ADP showed that employment in the world’s largest economy increased by 179,000 in May, a figure which was well below expectations for a rise of 210,000.
April’s figure was also revised downwards from 220,000 to 215,000.
The fall in the ADP figures occurred mostly in the business services and professionals category which includes high paid jobs such as engineers and accountants. The report also showed a drop in the number of lower-paid temporary workers.
The Dollar softened as the ADP data suggests that Friday’s government jobs report could also show a modest slowdown in job creation in May.
The data is disappointing as economists had been hoping that the US economy would begin to show stronger signs of improvement as it emerges from the harsh weather seen in the first quarter of the year.
Also weighing upon the US currency was a separate report which showed that the nation’s trade deficit widened sharply in April as imports outpaced exports.
The trade gap widened by 6.9% to its biggest gap in two years.
According to the Commerce department the deficit widened to $47.2 billion from the previous months revised figure of $44.2 billion. Economists had forecasting a figure of $40.38 billion.
“The decline in exports was principally due to a 2.2% month on month decline in food exports and a 1.3% month on month decline in automotive exports. In the other direction, food imports increased by a further 1.9% month on month in April, following a massive 10.9% jump in March. Automotive imports increased by a very strong 3.4%,” said a research note from Capital Economics.
Sterling meanwhile was continuing to find support from a report which showed that the UK service sector continued to expand strongly in April.
Pound to US Dollar Update
With the Bank of England’s interest rate decision fast approaching, the GBP/USD exchange rate was able to hold on to its modest advance.
The pairing traded in a comparatively narrow range yesterday but did experience some movement following the release of UK services data and several influential US reports.
Wednesday’s US ISM non-manufacturing figure showed that the service sector of the world’s largest economy was performing at a multi-month high in May and the US Dollar was lifted by the news.
The ‘Greenback’ had come under pressure earlier in the North American session as the ADP employment change report disappointed expectations by showing a jobs increase of 179,000 – 31,000 fewer positions than forecast.
The news that non-farm productivity had slipped by 3.2 per cent in the first quarter also had a slight impact on the appeal of the US Dollar.
On Thursday a UK housing report compiled by Halifax revealed that house prices leapt in May, compounding concerns regarding the UK’s hot housing market and adding to the case for a BoE rate increase occurring sooner rather than later.
Unless the BoE makes a shock move the GBP/USD exchange rate is likely to be unruffled by the announcement.
Any fluctuations in the Pound to US Dollar pairing are likely to be in consequence of the US initial jobless claims report.
If the jobs data shows that claims increased Sterling could post additional gains. However, a surprising fall would have the reverse effect.
US Dollar (USD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
US Dollar,
,Pound Sterling,0.5968,
US Dollar,,Canadian Dollar,1.0932,
US Dollar,,Euro,0.7347,
US Dollar,,Australian Dollar,1.0776,
US Dollar,,New Zealand Dollar,1.1883,
Canadian Dollar,,US Dollar ,0.9146,
Pound Sterling,,US Dollar,1.6756,
Euro,,US Dollar,1.3608,
Australian Dollar,,US Dollar,0.9281,
New Zealand Dollar,,US Dollar,0.8438,
[/table]
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