Pound Dollar Exchange Rate GBP USD Forecast Deteriorates on Best US Unemployment Data for 8 Years

February 5, 2016 - Written by John Cameron

STORY LINK Pound Dollar Exchange Rate GBP USD Forecast Deteriorates on Best US Unemployment Data for 8 Years

Hotly Anticipated NFP Result Surprises Investors - GBP, USD, EUR Exchange Rates Fluctuate Today

Most FX insiders consider the monthly US Non-Farm Payrolls data release as the most significant economic statistic of any given month. This afternoon’s NFP figure was as hotly anticipated as any recent editions, with analysts expecting the headline number to show that a hefty 191,000 new jobs had been created in the States during January. Investors holding US Dollars were therefore highly disappointed when the result came out at a distinctly below-par 151,000.

Pound Sterling to US Dollar (GBP/USD) Exchange Rate Plummets on Unemployment Dip

The fact that December’s NFP figure was also downwardly revised to 262,000 added insult to injury and investors with Dollar-denominated assets were therefore fearing the worst, although November's figures were revised up by almost the same amount as December's were reduced by. In the end, they needn’t have worried, as price action for the Buck in the immediate aftermath of the print has favoured the Greenback, with the Sterling Dollar exchange rate dropping from an intraday peak of close to the 1.4600 threshold down to as low as 1.4461 a short time ago.

Fed Interest Rate Hike Expectations Improve, US Dollar (USD) Exchange Rate Benefits

A quick glance at the global futures markets gave an indication of the reason why the Dollar is winning since the 1330hrs GMT figure. In the lead up to the release, investors were factoring in an over-80% chance that the US Federal Reserve’s headline interest rate would still be at its current level of 0.50% come the end of the year. Immediately after the release, the same futures market was implying only a 51.9% chance that the Fed will hold interest rates for the remainder of the year.

USD Exchange Rate Forecast Now Neutral/Positive

The reason investors upped their bets on more Fed tightening before Christmas lies in the fact that the overall level of US joblessness, as evidenced by this afternoon’s overall unemployment rate data, fell to 4.9% - its lowest level since February, 2008. The Fed has consistently alluded to the overall level of joblessness as the key determinant on when to tighten policy and investors remain fully aware of this. For this reason, and in spite of the disappointing Non-Farm Payroll result earlier, the Buck is now forecast to perform on a NEUTRAL TO POSITIVE footing moving forward.

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