US Dollar Higher as US Employment Data Confirms Economy is in 'Rude Health'

The pound to dollar exchange rate (GBPUSD) has fallen further as buyers back the US dollar in the wake of the release of the United States' latest employment figures.

The decline in the GBP to USD exchange rate has accelerated on Friday the 8th of January with the pair testing new lows.

US non-farm payroll data smashed expectations by reading at 292K - analysts had priced the US dollar lower for a reading at 200K.

The move higher in the US dollar comes as markets reprice the currency for more agressive interest rate rises in 2016.

“It’s far too soon to know definitively if Fed Chair Janet Yellen and Co. made the right decision in raising interest rates last month. However, December’s well above expected non-farm payroll figures will confirm her assessment that the world’s biggest economy is in rude health," says Dennis de Jong, Managing Director at UFX.com.

Despite the positive jobs figures, de Jong cautions that there are plenty of challenges on the horizon for Yellen to navigate, not least depressed oil prices and the Chinese economy playing havoc with exchanges the world over.

Latest Pound / US Dollar Exchange Rates

	Live: 1.3336▲ + 0.07% 12 Month Best: 1.3789
*Your Bank's Retail Rate	1.2882 - 1.2936
**Independent Specialist	1.3149 - 1.3203 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

The US dollar was already on the front-foot heading into the non-farm payrolls event having been bid higher by better-than-expected ADP Employment data from the U.S.

"US economic data releases since that FOMC meeting have been mixed, but the indications are that this will be another solid employment report. The consensus expectation is for a rise in payrolls of 200k and the stronger than expected rise in the ADP private sector employment measure points to upside risks," say Lloyds Bank in a brief to clients ahead of the event.

Commenting ahead of the release, FXStreet's Fundamental Analyst, Srimoyee Pandit said:

"Going forward, the Fed said it will decide on the timing as well as the size of future adjustments only after examining both realized and expected economic conditions. If the December non-farm payroll data is stronger than what is being expected, then the possibility of the Fed raising rates for a second straight time in end January will increase."

The possibility of a January rate hike from the Fed and the contrasting potential delay for the BOE in hiking rates, shows increasingly diverging outlooks for monetary policy which could translate into a bearish fundamental bias for the GBP to USD conversion.

Technical Forecasts for the Pound v Dollar

Turning now to the charts and we see that the current down-trend may have reached a level of major support in the form of the S1 Monthly Pivot situated at 1.4563.

This level is part for the reason for the halt in the slide down today, and would be expected to prop up prices for a while, or maybe even lead to a short-term bounce.

Nevertheless, with so much heightened event risk on the horizon in the form of NFPs and current China-induced volatility, the pivot could easily be broken by a sudden downwards shock.

Another sign the pair is overstretched to the downside is that ADX has moved above the 50 level.

The breakaway gap following the move down out of the wedge has reinforced the bearish potential of the move, although it has reached the minimum target using the width of the wedge as a measure, at 1.4550.

I now see the 1.4500 level as key, with a decisive break below it necessary to open the gates to more downside.

As such I would want to see a move below 1.4480 for confirmation and a target at 1.4400 where the S2 Monthly Pivot is likely to provide further support.