The Pound to US Dollar exchange rate (GBP/USD) shrunk by around -1.3 cents yesterday as strong US Weekly Jobless Claims data boosted sentiment towards the US economy and allowed the American currency to breach the significant ¥100 barrier against the Japanese Yen.
During the afternoon the latest US labour market data showed that Initial Jobless Claims shrunk to 323,000 last week – their lowest level since January 2008. The 5-year low score pointed towards improved US economic performance in the second quarter, which was interpreted to combat the Federal Reserve’s dovish quantitative easing scheme: the better the US economy functions, the more likely it is that the Fed will look to reduce the pace of its $85 billion a month asset purchasing programme.
Whereas Central Bank support in the world’s largest economy is seen as positive for global growth prospects and risk sentiment, the monetary loosening scheme is viewed as damaging to the US Dollar because it brings down the yield (profitability) on US Treasury bonds. For this reason any inclination towards a slowdown in QE3 is seen as a bullish impetus for the US Dollar.
GBP/USD fell by around -0.75 cents to 1.5500 in response to the US jobs report.
Sterling had initially advanced by around 0.4 cents during the morning as the Bank of England refrained from cutting its 0.50% benchmark interest rate or making any additions to its current asset purchasing target of £375 billion. The Pound was also supported during the European session by a stronger-than-expected Industrial Production print of 0.7% and a faster-than-anticipated Manufacturing Production expansion of 1.1%.
An upbeat report from the National Institute of Economic and Social Research (NIESR), during the afternoon, showing that the UK economy accelerated to 0.8% growth between February and April, was unable to halt the stampeding ‘Greenback’.
The US Dollar picked up the pace again during the evening as a cool down in equity markets allowed the world’s reserve currency to smash its way through significant resistance against the internally devalued Japanese Yen. Since Autumn last year the Yen has retreated by over 22 cents against the US Dollar in response to pledges from the Japanese government to fight deflation by purchasing unprecedented amounts of government bonds and mortgaged-backed assets.
USD/JPY jumped 1.9 cents yesterday evening to 100.62 for the first time in four years. The important breakthrough boosted the US Dollar across the board and caused Sterling to shed another -0.5 cents, falling to 1.5450.
In response to the Yen demolition the ‘Greenback’ also improved by a further: 0.7 cents against the Euro (EUR/USD), 0.5 cents against the Canadian Dollar (USD/CAD), 1.1 cents against the Australian Dollar (AUD/USD), and 0.65 cents against the New Zealand Dollar (NZD/USD).
The psychologically significant breach of ¥100 Yen is expected to lead to further US Dollar rallies against the Japanese Yen over the next few months, as the Bank of Japan continues to weaken the domestic currency with extensive asset purchases.
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