Pound Rises v Dollar on US Employment Data Disappointment

Non-farm payroll data

The Pound to Dollar exchange rate rose 0.62% last week with an extra boost coming ahead of the weekend thanks to less-than-impressive US employment data.

The Dollar was seen moving lower againts a host of currencies following the release of US non-farm payrolls data from the Bureau of Labor Statistics that showed 147K jobs were added to the economy in May, but analysts were expecting a more robust 173K to be added.

The disappointment saw the Dollar index - a measure of overall Dollar performance - fall by 0.33% to reach 96.70.

The Pound was able to recover much of its earlier losses and GBP/USD is quoted at 1.2870.

The Euro is meanwhile higher at 1.1262.

“The dollar dived and US Treasury yields sank after the snapshot of the US labour market left investors disappointed. This was a soft nonfarms number, enough to make investors cautious but hardly enough to change immediate projections for the path of rates," says Neil Wilson, Senior Market Analyst with ETX Capital.

Wilson suggests that the initial weakness seen in the Dollar might be overdone as the final figure actually represents some solid jobs growth.

Add to this the view that the USD doesn't tend to be shaken by this employment data as was once the case and there is the prospect that initial weakness might prove short-lived.

"Every month there is great focus on the employment report,yet most months, the market reaction to any surprise lasts only a short period of time before reverting back to the previous trend," says Hans Redeker, Strategist at Morgan Stanley in London. "Today should be no different."

Markets appear convinced that the US Federal Reserve will stick to their already-signalled plans with regards to interest rate rises and won't be swayed by this data.

"We know the Fed is more than happy to look through this kind of thing. Indeed Janet Yellen isn’t that fussed about one quarter of weaker growth, so she’s hardly going to be troubled by a soft-ish month or two of job creation," says Wilson.

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Where the Dollar Exchange Rates Could Go

The Pound to Dollar exchange rate is at 1.2867 and remains largely range-bound and could actually be on track for a weekly gain.

The politically-driven pound found support this week from the U.K. economy which produced better than expected news on manufacturing and construction.

Politics are expected to be the main driver of the pound, particularly ahead of Britain’s general election on June 8.

"Sterling was boosted, jumping to just shy of $1.29 despite election jitters crimping demand for Sterling. We’re seeing cable bounce around quite a bit and it still lacks any meaningful direction until after the June 8th election result is known," says Wilson.

Analyst Robin Wilkin at Lloyds notes that although at times intra-day price action has been violent, this week we have been mostly contained by last Friday’s one-day range.

"The break of that channel is capping at 1.2930, while 1.2775/50 is support," says Wilkin in a noted dated June 2.

The anlyst warns momentum studies are biased for a break of support, with next notable levels in the 1.2625-1.2565 region.

"Medium-term, a break-up through 1.3050-1.31 region would call our current bearish view into question and risk an expansion of the move towards the 1.34-1.35 region. This would not change our underlying medium-term outlook of a range, but shift it up to 1.25-1.35 from 1.20-1.30," says Wilkin.

Pound to Dollar chart

The Euro to Dollar exchange rate is at 1.1221 and it is pointed out that we move into day 9 of the current range under resistance at 1.1265.

"This consolidation should still give way to a move up towards the range highs in the 1.1350-1.1450 region, but we are expecting the upside to be limited to there in the short to medium term. A decline through 1.1150 and then 1.1020 is needed to suggest that lower high is already in place," says Wilkin.

Longer term, Lloyds say we have mounting evidence that 1.0340 was the long-term low we have been looking for.

"The question now is whether we are going to see further range trading under 1.1450 key resistance before head up towards upper targets in the 1.1850-1.2300 region. Rate spreads, at the moment, suggest that will be the case," says Wilkin.

Euro to Dollar chart


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