Foreign Exchange Update : GBP USD Rate Up Following Poor US Non-Farm Payrolls Figure, While GBP CHF Rate Plummets

6 Jun 2011 at 4 AM - Written by John Cameron

STORY LINK Foreign Exchange Update : GBP USD Rate Up Following Poor US Non-Farm Payrolls Figure, While GBP CHF Rate Plummets

The Pound Dollar exchange rate (GBP USD) is 1.6440. The Pound Euro exchange rate (GBP EUR) is 1.1231. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5306.

Friday’s highly disappointing US Non-Farm Payrolls figure for May stole the headlines in the currency markets at the end of last week. Analysts had expected the key labour market number to show that 54,000 new positions had been created in the non-farming related sectors of the US economy last month against analysts’ expectations of an increase of 165,000.

Ordinarily, commentators would expect such a disappointing Non-Farm figure to cause the US Dollar to strengthen, as institutional investors pile their funds into the safe haven of the US treasury bill. The market’s immediate response to the figure was indeed to seek out the safe haven of the USD in the immediate aftermath of the release. This saw the GBP USD exchange rate briefly dip below the 1.6300 level.

However, this Dollar strength proved to be short-lived and by close of business on Friday, the GBP USD rate had risen to 1.6427, whilst the EUR USD rate had climbed by over 1% on the session to close at 1.4641.

Data releases last week included not only concerning US labour market data, but also weaker than anticipated Australian trade numbers and a poor UK PMI Services Sector survey on Friday. The combined effect of these releases was to cause a pronounced dip in global appetite for risk.

The major beneficiary of this increased risk aversion was the Swiss Franc, as opposed to the US Dollar. The Franc made up 0.68% against Sterling on the day, with the GBP CHF rate trading down into the low 1.36s at one point during Europe’s afternoon session.

Last week’s price action on the CHF and USD has led analysts to suggest that the Greenback is losing its lustre as the world’s reserve currency of choice. This adjustment in attitude from market participants may have been caused by Moody’s threat at the end of last week to downgrade the US’s debt rating from AAA if the US Congress fails to reach an agreement on extending the US economy’s debt limit by 2nd August. Given this apparent sea change in market sentiment, there may be further US Dollar weakness to come in the short-to-medium term.


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