Weak US ISM Manufacturing Survey Sends Pound To Dollar Rate Higher - Friday's Non-Farm Payrolls Print Could Trigger Further Upside

Published: Wednesday, 5 September 2012 09:00 BST - Written by Frank Davies

STORY LINK Weak US ISM Manufacturing Survey Sends Pound To Dollar Rate Higher - Friday's Non-Farm Payrolls Print Could Trigger Further Upside

The evidence is mounting that the tried and tested correlation between the US Dollar and risk is starting to de-couple, as market participants continue to alter their collective mindset following Federal Reserve Chairman Ben Bernanke’s Jackson Hole speech of last Friday. Rightly, or wrongly, the investment community has taken Bernanke’s words of praise for non-conventional monetary policy measures as a de facto ‘go-ahead’ for a third tranche of QE in the US. However, institutional investors are not 100% convinced - what they really need in order to provide confirmation is some really weak US domestic data releases, and they got one yesterday in the form of last month’s US ISM manufacturing sector survey. The closely-watched bell-weather of America’s economy printed at 49.6, down from July’s showing of 49.8. Analysts had been anticipating a 50.0 showing, which would have indicated that the key sector had ceased contracting. Ordinarily, such a disappointing domestic data release would cause a shift into the safe-haven of the US treasury bill, triggering strong support for the US Dollar. However, such is the mood of expectancy regarding more QE, the net effect of the release was to send the GBP USD back above the 1.5900 level once more.

The apparent ‘untethering’ of the traditional risk/Dollar relationship is likely to yield interesting price movement on Friday afternoon, when the latest US Non-Farm Payrolls data is released. With analysts expecting a healthy 127,000 new jobs to have been created in the States last month, the Greenback could be set for a fall. A print of significantly less than the 127,000 reading anticipated would see ‘QE3 fever’ reach euphoric levels, potentially sending the GBP USD exchange rate through the 1.6000 level.

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