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Pound Dollar Rate - GBP/USD tests Higher as Dollar Loses Support, Euro Gains

March 7, 2011 - Written by John Cameron

The Pound Dollar exchange rate (GBP/USD) is 1.6259. The Pound Euro exchange rate is 1.1606.

Last week’s better-than-anticipated US labour market data provided more evidence that the US economy is strengthening. The figures showed that almost 200,000 new positions were created in the non-farm sector last month. The figures also contained details of an upward revision to December and January’s disappointing figures. The numbers showed that the rate of unemployment had dropped below 9.0% and that February was the third successive monthly drop in unemployment in the states.

The positive jobs data re-enforced recent numbers which showed that the key US manufacturing sector was growing at its fastest level for almost seven years. Meanwhile the American services sector is expanding at its fastest rate for almost five years.

Chairman of the Federal Reserve, Ben Bernanke, has recently spoken of his fears over the strength of the real economy in the US. However, last week’s data may go some way to convincing him that a tightening of US monetary policy is not only possible, but necessary in order to curb rising prices.

The Dollar has suffered in relative terms over the last few months because the markets feel that it is very unlikely that the Federal Reserve will choose to raise interest rates or scale back their asset purchase scheme any time soon. The US Dollar may see some support as expectations are adjusted. However, as the world’s leading economy, improved US economic data may also increase global appetite for risk, causing institutional investors to liquidate their positions of safety in US treasury bills. If this happens, the net outcome of recent positive US economic data may be further Dollar weakness.

The GBP/USD rate traded up to almost touch its 13 month high of 1.6344 earlier today and a close above this level would be highly bullish for this pair, with the next strong support not coming until the 1.6700 level.

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