GBPUSD Back to 1.25 on U.S. Jobs Surprise

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The Pound to Dollar exchange rate put in a strong show through the course of morning New York trade with the pair rising to 1.25 again after the release of a surprisingly soft labour market data release.

"The U.S. dollar came under renewed pressure after Jobless Claims jumped," says Fawad Razaqzada, Market Analyst at City Index. Initial claims surprised investors after printing at 261K against the 235K expected and above 233K in the previous week.

"The U.S. dollar was again coming under pressure after the weekly jobless claims data showed a much larger rise than expected, fuelling speculation that the labour market is finally starting to respond to the impact of past rate hikes and spike in inflation," says Razaqzada.

"While it only represents a single data point, this could be signalling a softening in a labour market which has been very resilient to interest rate hikes to date. USD is at the margin bearish for today’s session, and overall this could dampen the probability of a hike for the June FOMC Meeting," says Ryan Brandham, Head of Global Capital Markets for North America at Validus Risk Management.

The gains by GBPUSD come amidst a broader retracement in the U.S. Dollar as investors continue to display uncertainty as to the prospect for further Federal Reserve interest rates, confirming it is central bank policy that remains firmly in charge of FX markets.

"The USD is lower both on a trade-weighted and bilateral basis today. Indeed, it does feel like the market is looking at the greenback in the context of a Fed pause next week, and how that stacks up against other central bank surprises over the past week," says Bipan Rai, Head of North America FX Strategy at CIBC Capital Markets.

Above: GBP/USD at one-hour intervals.

GBPUSD rose to a high of 1.2511 as it continued to recover from Monday's low of 1.2369.

"The USD has softened somewhat as US yields struggle to move meaningfully higher and global equity markets look a little more buoyant," says Dominic Bunning, Head of European FX Research at HSBC Bank Plc.

There could be further drivers behind the Dollar's decline, however.

"We think the most proximate cause for today’s move lower is the hope that action taken by Chinese banks will spur activity. That’s evident from the uptick in pro-cyclical currencies overnight," says Rai.

The Dollar-Yuan exchange rate remains one of the major anchor pairs for the broader USD direction, and any signs of stabilisation in the Chinese currency can therefore keep broader Dollar strength at bay.

"Signs of a peak in USD-CNY also may be helping FX markets to turn less bullish on the greenback in the short-term," says Bunning.

The Chinese government is considering new measures to prop up its faltering property market.

Actions could include cutting the down payment for a mortgage in some neighbourhoods, reducing agent commissions on deals, and relaxing restrictions for residential purchases, Bloomberg reported.

It comes as the world's second-largest economy could provide further policy support as part of its post-pandemic recovery. Such hopes lifted China-exposed stocks and simultaneously weighed on the Dollar which is regarded as an anti-cyclical asset which tends to decline when global growth outside of the U.S. accelerates.

Elsewhere, technical analysis suggests GBPUSD could be at risk of retreating back to 1.20 over the coming weeks.

This is according to a new analysis from Bank of America. Paul Ciana, Technical Strategist at Bank of America, says he holds a bearish stance on Pound-Dollar while the exchange rate remains below a long-term trend line.

He says GBPUSD topped at trend line resistance and favours selling the bounce back and looking for a decline to near the 200-day SMA near 1.20.

"GBPUSD topped into trend line resistance," says Ciana. "Our bias is to sell rallies in GBPUSD while below the trend line now at 1.2630 for downside to 1.20 / 200d SMA."