Foreign Exchange Report : Flat-Line US Non-Farm Payrolls Figure Sees Investors Abandon Equities, Sending GBP USD and GBP CHF Rates Lower

Modified: Monday, 5 September 2011 09:10 BST - Written by John Cameron

STORY LINK Foreign Exchange Report : Flat-Line US Non-Farm Payrolls Figure Sees Investors Abandon Equities, Sending GBP USD and GBP CHF Rates Lower

The Pound Euro exchange rate (GBP EUR) is 1.1354. The Pound Dollar exchange rate (GBP USD) is 1.6177. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5245.

Friday afternoon saw the release of the Non-Farm Payroll figure for August in the US. The NFP number is consistently the single most closely-watched release of the monthly economic data schedule, so the markets were sent into a tailspin when the latest edition showed that zero new jobs had been created in the non-agricultural sectors of the world’s leading economy last month. Analysts had expected August’s NFP figure to show that some 68,000 new positions had been generated.

To add insult to injury, June and July’s NFP figures were revised downwards at the same time, raising renewed questions about the state of the real economy in the US. July’s number was downgraded from 117,000 to 85,000 and June’s was downed from 46,000 to just 20,000 - significant adjustments which mean that only 105,000 new jobs were generated in the States in the three months to the end of August.

The weak NFP reading caused an immediate dip in global appetite for risk on its release, as investors priced in a higher chance of a world-wide double dip recession. The flight to safety caused market participants to shift out of riskier investments including equities, causing the FTSE 100 and S&P 500 share indices to close down by over 2.5% on Friday. Hong Kong’s Hang Seng equities index is currently trading down by a similar figure today.

The poor US employment market data has led investors to take shelter from the downward movement in global shares by buying up government bonds and gold, causing increased demand for US treasury bills. This move sent the US Dollar higher against the other majors as last week's sesion drew to a close. The GBP USD rate dropped from a daily high of 1.6254 on Friday to touch 1.6171 in the immediate aftermath of the NFP release and with the GBP USD pair opening this week’s session at a lower rate than Friday’s close, forming a ’gap’ on the charts, further downside is highly possible today.

The Swiss Franc also picked up support due to its safe haven status immediately after the NFP release, seeing the GBP CHF rate take a run at 1.2500 to trade as low as 1.2521 for the first time since 12th August, a move which is sure to displease the Swiss National Bank which continues to work for a weaker Franc.

If this week’s whole-of-Eurozone and Australian GDP figures disappoint, then the safe havens of government bonds, gold, the US Dollar and the Swiss Franc may enjoy further pronounced support at the expense of global equities.


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