Pound inching up from lows after strong US payrolls figures

A strong showing from US data helped the pound higher against the euro, but sterling weakened against the US dollar last week.

Friday’s gains against the euro have melted away this morning, leaving the pound only just above the ten-month low hit on Thursday. GBP/EUR is trending around €1.1072, while GBP/USD remains at US$1.3040 after last week’s two sharp slumps. GBP/AUD is inching up from weekly lows at AU$1.6452, while GBP/NZD has shot up 0.7% to NZ$1.7676. GBP/CAD has recorded moderate early-morning gains to hit CA$1.6515.

There’s not much happening for the pound today from a data point of view, but read on to see why GBP could receive a leg-up from members of the US Federal Reserve...

What’s been happening?

The pound slumped against the US dollar but rose against the euro before the weekend; all thanks to the latest developments in the United States.

There wasn’t a huge amount of fresh UK data for markets to digest, leaving the pound to count its bruises from the Bank of England’s ‘Super Thursday’ meeting.

New car registrations figures for the UK showed a -9.3% decline, suggesting that consumers were not feeling confident enough in the health of the economy to commit to large purchases.

That put the pound on a weak footing to start with, but a bigger driver of exchange rate movement was the latest US non-farm payrolls jobs report.

The US private sector was expected to create 180,000 new jobs in July, but instead new hires racked up to 209,000.

As expected, the unemployment rate fell from 4.4% to 4.3%. Altogether the data drastically cut the odds of the Federal Reserve leaving interest rates on hold until 2018, although this still only put bets of another interest rate hike just above the 50% mark.

This sent the US dollar charging higher, undermining GBP/USD, although this also weakened demand for the euro, which allowed GBP/EUR to recover some of Thursday’s losses after the disappointing Bank of England (BoE) monetary policy meeting.

What's coming up?

Considering the UK only has Halifax house price data on the economic calendar, markets may remain focussed on the downbeat outlook for UK monetary policy over the coming months. This could see the pound slide lower, with losses potentially accelerated if the day’s overseas data proves positive.

GBP/EUR may be under pressure after the release of German industrial production figures and the Eurozone Sentix investor confidence index today.

GBP/USD could find some support from speeches by Federal Reserve officials James Bullard and Neel Kashkari. Assuming they talk about monetary policy, they are likely to caution against more rate hikes; Bullard is fairly pessimistic about the need for more hikes, while Kashkari is very downbeat about the need for higher borrowing costs.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.