GBP USD & GBP CAD Exchange Rates Tumble To 32-Month Lows, GBP AUD At 28 Year Low Following US Jobs Data

Published: Monday, 11 March 2013 09:00 BST - Written by John Cameron

STORY LINK GBP USD & GBP CAD Exchange Rates Tumble To 32-Month Lows, GBP AUD At 28 Year Low Following US Jobs Data

Friday’s session brought significant price action for more than one Sterling-based currency pair following the release of labour market data in the world’s largest economy which thrashed market expectations. The final session of the week brought the publication of last month’s Non-Farm Payrolls data in the USA and the closely-watched headline number showed that almost a quarter of a million American workers had entered employment in the States last month. Economists had been expecting an increase in the NFP figure of only 165,000, so the showing of 236,000 caused an immediate knee-jerk reaction from investors as they rapidly adjusted the risk-profile of their holdings.

The strong increase in global appetite for risk which the US NFP data elicited was accentuated by the fact that the American job numbers also saw the overall rate of unemployment unexpectedly drop from 7.9% to 7.7%. In previous years, such a sharp increase in investor sentiment would have triggered a sustained bout of selling pressure on the US Dollar; until the advent of the international credit crisis in 2007, the relative strength of the ‘Buck’ had a strong tried and tested inverse correlation with levels of global risk appetite. However, this link was watered-down and ultimately broken by the Federal Reserve’s introduction of a large-scale Quantitative Easing programme in late 2008, as a response to the contraction in world credit markets. The further domestic economic conditions deteriorated, the more funds the US central bank allocated to its asset purchase scheme. The more Dollars the Fed was ‘printing‘ and releasing into the US economic system, the more the value of each Dollar decreased. This meant that poor domestic economic data prompted investors to price-in an increased chance of more QE in the States, which in turn caused the Greenback to weaken. Conversely, encouraging economic releases caused investors to increase their bets on a near-term reduction in the US QE programme, favouring the Dollar.

The link between positive US economic data releases and Dollar-strength was cemented by the minutes of the Federal Reserve’s February FOMC minutes, released the week before last, which revealed that a lengthy discussion had taken place between the US central bank’s policymakers regarding an ‘exit strategy’ for scaling down its QE programme. Friday’s highly positive job numbers therefore triggered a bout of strong support for the ‘Buck’, sending the Pound to US Dollar exchange rate (currency : GBP USD) down to its lowest level since June 2010 at 1.4885 before close of business Friday.

Other risk-sensitive currencies also registered significant highs against Sterling in the aftermath of the US jobs numbers. The Pound to Australian Dollar Exchange Rate (currency : GBP AUD) tumbled to its lowest level for 28 years at 1.4537 as the risk-sensitive ‘Aussie’ rode the wave of improved investor sentiment. The pair now risks a prolonged period trading in ‘no man’s land’, with no recent levels of technical support to fall back on. Meanwhile, the Canadian Dollar enjoyed a double-whammy of good news on Friday afternoon; Canadian labour market data, released at the same time as the US NFP figure, showed a net change in Canadian employment of 50,700 last month versus expectations of a print of 8,000. The dual developments saw the Pound to Canadian Dollar exchange rate (currency : GBP CAD) drop to its lowest level for over 32 months at 1.5247.

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