Foreign Exchange Insight : GBP USD Rate Improves Following Disappointing US Non-Farm Payroll Figure, While GBP CHF Rate Drops

Published: Monday, 11 July 2011 06:45 BST - Written by John Cameron

STORY LINK Foreign Exchange Insight : GBP USD Rate Improves Following Disappointing US Non-Farm Payroll Figure, While GBP CHF Rate Drops

The Pound Euro exchange rate (GBP EUR) is 1.1281. The Pound Dollar exchange rate (GBP USD) is 1.6000. The Pound Australian Dollar exchange rate (GBP AUD) is 1.4938.

Friday’s session in the currency markets was marred by the release of extremely weak US labour market data; for the second month in succession, the closely-watched US Non-Farm Payroll figure printed far below expectations, showing that only 18,000 new jobs were created in the non-agricultural sectors of the world’s largest economy in June versus analysts’ expectations that 108,000 new situations would have been created.

In a further blow to hopes of a speedy economic recovery in the States, last month’s US Non-Farm Payroll figure, which showed that only 54,000 new positions had been created in May, was downwardly revised to 25,000.

Price movement for the US Dollar in the markets went against conventional wisdom following the release of this key US data. Ordinarily, analysts would expect the Dollar to strengthen following such disappointing figures, as investors seek out the safe-haven of the US Treasury Bill. However, market participants immediately sold off the Greenback, with the GBP USD rate rapidly moving from the low-1.59s to trade up as high as 1.6078 in the immediate aftermath of the release.

This price action suggests that investors are losing their faith in the Dollar as a safe haven in times of doubt; this is backed-up by a strengthening of the Swiss Franc, which appears to be increasingly used as the world’s reserve currency of choice. The GBP CHF rate dropped from 1.3543 at the time of the Non-Farm Payroll release to briefly trade below 1.3400 before Friday’s close.

However, the GBP USD rate has recovered to touch as low as 1.5991 in early trading this week. This move is partly a delayed reaction to Friday’s poor US labour market numbers, but also shows heightened fears from market participants that the US is hurtling towards a debt crisis, following an extraordinary White House meeting yesterday between President Obama and eight leading Congressmen and Senators from both sides of the political divide. The meeting was intended to find consensus for Obama’s proposed budget package, which would cut the US’s national debt by $4tn, however it ended after 75 minutes with no sign of an agreement. Without new legislation, the US is in danger of defaulting on its debts when the current budget expires at the start of August, sending the markets into a panic.


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