The Pound to US Dollar exchange rate declined by around a quarter of a cent earlier this morning ahead of this afternoon’s highly anticipated US Non-farm Payroll report.
September’s NFP report was originally intended to be released on October 4th, but due to the 16-day government shutdown traders have been made to wait an additional three weeks for the release. This, combined with the Federal Reserve’s decision to link its expansive QE3 scheme to the domestic labour market, has placed heightened importance on this afternoon’s Payroll numbers.
Analysts expect a score of 180,000, but the ecostat is notoriously volatile so there is a strong possibility that the actual result could deviate from the forecasts.
With US GDP likely to be dampened by around -0.6% in the fourth quarter due to the political impasse that led to hundreds of thousands of workers being sent home, traders now expect the Federal Reserve to continue purchasing $85 billion of assets a month for the remainder of the year. However, a stronger-than-anticipated NFP print could reignite taper talk and subsequently give the ‘Greenback’ a sizeable boost.
On the other hand a slower-than-predicted rise in the Payrolls figure could seriously dampen demand for the US Dollar and possibly send GBP/USD on the path towards a 10-month high of 1.6300. A slowdown in Service Sector activity during September adds weight to the argument that this afternoon’s numbers will disappoint.
Furthermore, there are downside risks to consider for the ‘Greenback’ even if the NFP figure comes in strongly.
Firstly, it is important to remember that the US government has only been reopened for a short period of time, meaning that there might be more extrapolation than usual when calculating September’s score. If this does prove to be the case, then it is possible that the figure will be heavily revised in the future.
And secondly, it is widely anticipated that hiring activity slowed down significantly during October – thanks to the damaging debt ceiling debate – meaning that any potential labour market gains made during September are likely to be reversed when October’s figures are released.
With data unlikely to normalise for a few months yet and economic indicators certain to be weakened by the shutdown, it does appear that the Fed’s QE3 scheme will remain at full speed until the New Year at least. This means that demand for the US Dollar is unlikely to shift dramatically until then.
Tomorrow’s Bank of England Minutes report and Friday’s third quarter UK GDP figures are the next key events on the FX calendar this week. Strong readings could help impel GBP/USD towards 2013 highs above 1.6300.
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