Soft Brexit Hopes Boosted Pound US Dollar Exchange Rate Ahead of US Payrolls

December 2, 2016 - Written by Ben Hughes

STORY LINK Soft Brexit Hopes Boosted Pound US Dollar Exchange Rate Ahead of US Payrolls

Hopes of Softer Brexit Shored up Pound Sterling Outlook

Investors were greatly encouraged by comments from Brexit Secretary David Davis, which suggested that the UK may pay to maintain its tariff-free access to the single market.

As this appeared to point towards a more moderate form of Brexit, the Pound (GBP) was prompted to trend sharply higher across the board, in spite of November’s Manufacturing PMI falling short of forecast.

Although the Pound Sterling US Dollar (GBP USD) exchange rate struggled to hold onto all of its initial gains, the trend of the pairing remained bullish on Friday morning.

Demand for Sterling was further encouraged by a stronger-than-expected UK Construction PMI, signalling that the construction industry remained in a solid state of expansion in November.

Higher Jobless Claims Boosted GBP/USD Exchange Rate

The momentum of the US Dollar (USD) faltered on Thursday afternoon after the latest jobless claims figures were found to have unexpectedly risen.

This suggested that the domestic labour market is not in quite such a robust shape as previously thought, seeming to bode ill for November’s Non-Farm Payrolls report.

Although the ISM manufacturing index bettered expectations, rising from 51.9 to 53.2 on the month, this was not enough to shore up the ‘Greenback’.

US Dollar Bullishness Forecast on Positive Payrolls Report

However, the GBP USD exchange rate sees potential for a fresh downtrend if this afternoon’s jobs data does not disappoint markets.

A strong showing for November would give the Federal Reserve further reason to raise interest rates at its December meeting, although the upside potential of the US Dollar is somewhat limited by the already-high expectations of an imminent move.

As researchers at Danske Bank noted:

‘Despite the moderate headline employment growth of 161,000, the October US jobs report was strong with declines in both the unemployment and underemployment rates and acceleration of wage growth to 2.8% y/y, the highest wage growth since 2009. This should be sufficient 'further evidence' for the FOMC to raise rates on 14 December, which is now also fully priced in by markets.’

With political risk factors in Europe coming into focus over the weekend the appeal of the safe-haven US Dollar could be boosted further, leaving the GBP USD exchange rate on a softer footing.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Daily Currency Updates Dollar Pound Forecasts Pound Sterli Forecasts