Pound Savaged by the Dollar as US Employment Numbers Beat Expectations

The GBP to USD conversion has been hammered lower as the US heads for an interest rate rise while the UK's Bank of England dismisses such a move.

The pound to dollar exchange rate (GBPUSD) is seen over a percent in the red and will soon test 1.50 on the back of a blow-out employment report in the United States.

US non-farm payrolls rocked expectations coming in at 271K, ahead of analyst expectations for 180K. The US unemployment rate is now at 5.0%, down from 5.1%.

A December interest rate rise from the US Federal Reserve is now firmly baked into the pound to dollar exchange rate.

The slump in GBPUSD adds to the steep decline witnessed 24 hours earlier when the Bank of England’s communicated it would likely only start raising rates in 2017.

The GBP was the worst performer in the G10 space on what appears to be a deliberate policy of currency debasement by UK policy makers.

Forecasting a Lower GBPUSD Rate

The outlook is negative for the GBP in the short and medium term thanks to a lack of support on rates from Threadneedle Street; markets are pricing in an interest rate rise in 2017.

As a result the pound has invalidated its uptrend against the US dollar, in place since the start of October, after breaking below the support zone that was the upward-facing trend line:

The above image was posted yesterday when we were a great deal more optimistic on the pound's chances against the dollar.

We wrote that the first obvious target was the support zone drawn at 1.5246 and warned that there was little historical evidence of support being found until the 1.51 line. 

Both support zones proved as effective as a chocolate fire-guard.

Look at the post-NFP action:

All we will say at this point is that those hoping for a stronger pound to buy their dollars with may be disappointed. The technical decimation of the exchange rate leave us standing back - the lows at 1.46 now looks to be a genuine target.

One sliver of hope in the near-term is the observation that the GBPUSD is now over-sold from a technical viewpoint; the RSI reading is at 30. But, as we noted with the recent EURGBP sell-off, these conditions can last for some time.

Latest Pound / US Dollar Exchange Rates

	Live: 1.3342▲ + 0.12% 12 Month Best: 1.3789
*Your Bank's Retail Rate	1.2889 - 1.2942
**Independent Specialist	1.3155 - 1.3209 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Fundamentals: Try and Dodge This US Fed

The only game in town following the NFP report is to buy dollars.

If you are a central banker in the US or the UK these days your job is essentially quite a simple one - you are tasked with finding ways of avoiding raising interest rates at all costs.

As a Bank of England decision maker you are permitted to shift the goal posts at will; if the unemployment rate is your trigger to higher rates but the unemployment rate promptly crashes through your target you can shift focus to economic 'slack.' Choose inflation if the economy tightens, just don't raise rates.

The US Fed plays a similar game - they have recently shifted focus from the domestic agenda to the international agenda citing a slowdown in Chinese growth as a reason to keep rates low. This is unprecedented for the US central bank.

"I'd like to see how the Fed is going to back away from a rate rise after that jobs report," says Michael Hewson at CMC Markets following the most recent job numbers. The game is up - interest rates must rise and the markets know it.

That is why the dollar is shooting higher and may prove unstoppable for some time yet.