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US Dollar to British Pound Exchange Rate Sturdy on US Non-Farm Payrolls

August 7, 2017 - Written by James Fuller

Last week saw the US Dollar to British Pound exchange rate briefly hit its worst levels all year, but Sterling was unable to hold those gains due to the latest Bank of England (BoE) decision and US Non-Farm Payroll news.

After beginning last week at around 0.7614, USD/GBP tumbled and hit a 2017 low of 0.7543. After that the pair recovered and ended the week near a weekly high of 0.7675. USD/GBP continues to trend close to this high on Monday.

USD Sturdies on Non-Farm Payroll Report

Last week’s US data finally gave investors a reason to buy the recently weak US Dollar again, as July’s key US Non-Farm Payroll report beat expectations in many major prints.

The Non-Farm Payroll change came in at a solid 209k, beating the forecast 183k. The unemployment rate improved to 4.3% as forecast, and the participation rate rose from 62.8% to 62.9%.

US hourly wages also saw solid performance. Month-on-month wages improved from 0.2% to 0.3% as forecast, while the yearly wage rate remained at 2.5% rather than slipping to the expected 2.4%.

Analysts were overall impressed with the job report, noting that there were no real downsides to be seen. According to Nationwide chief economist David Berson;

‘This is an unambiguously positive jobs report, as it suggests that consumers will have the wherewithal to increase spending (with solid job gains and faster wage growth) and that inflation may be slowly pushed higher by tighter labor and product markets’

As well as a solid jobs report, last Friday also saw the publication of the US June trade balance update. This saw the US trade deficit lighten from $-46.4b to $-43.6b, beating the forecast of $-45b.

Friday’s strong US data briefly bolstered Federal Reserve interest rate hike bets. However, bets that the Fed will hike US interest rates a third time in 2017 are still below 50%, keeping pressure on the US Dollar’s gains.

GBP Fails to Hold on Dovish Bank of England (BoE) News

The dovish news from August’s Bank of England (BoE) policy decision continues to weigh on Sterling trade this week, preventing it from recovering against the US Dollar.

Last week’s BoE decision was largely unsurprising, with the bank voting 6-2 to leave monetary policy frozen as analysts expected.

However, the bank also cut its UK growth forecasts which weighed on investor hopes that Britain’s economy could remain resilient and potentially support tighter monetary policy in the foreseeable future.

The bank lowered its 2017 growth forecast from 1.9% to 1.7%, and its 2018 forecast from 1.7% to 1.6%.

On top of this, BoE Governor Mark Carney took a cautious tone in his press conference and issued fresh warnings on the potential damage the Brexit process could cause to households and Britain’s economy.

Investors still have little reason to buy the Pound this week, as rumours emerge that Brexit negotiations had not gotten off to a strong start.

USD/GBP Forecast: US Inflation Data in Focus This Week

US Dollar to Pound exchange rate movement could be relatively limp for most of the week, as investors await key data due on Thursday and Friday.

Until then, any political developments in the US or Britain could inspire exchange rate movement too.

Thursday will see the publication of Britain’s June trade balance update. If the deficit lightens further than expected, this could provide the boost Sterling needs to push USD/GBP lower again.

Britain’s June industrial and manufacturing production results will also be published, as well as June’s construction output report.

However, the biggest focus this week will be Friday’s US Consumer Price Index (CPI) results from July.

US inflation fell short of expectations in June, which led to a drop in Fed rate hike bets and a US Dollar selloff.

If US inflation from July impresses traders, bets that the Fed could hike US interest rates again before the end of the year would jump and the US Dollar would see stronger demand, giving USD/GBP some late-week gains.
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