GBP USD Exchange Rate Volatile Following Impressive US Employment Report

January 5, 2018 - Written by John Cameron

STORY LINK GBP USD Exchange Rate Volatile Following Impressive US Employment Report

The Pound US Dollar (GBP USD) exchange rate is trading a little erratically this morning after the pairing tumbled yesterday in the face of impressive US employment data.

US Dollar (USD) Fluctuates in Wake of Employment Data

After a rough start to 2018 the US Dollar finally found some respite on Thursday following a better than expected December employment report.

According to data to the latest ADP employment data 250,000 people entered the US workforce last month, this was up from 185,000 in November with the figures dwarfing initial expectations of 190,000 and reaching their highest levels since March.

Investors were particularly by the employment report as it showed that the majority of gains were in the services sector, with higher paying ‘professional and business’ jobs having leapt by 72,000 last month.

Paul Ashworth at Capital Economics said;

‘After the earlier disruption caused by the hurricanes, the labour market clearly ended 2017 with some considerable momentum.’

‘Looking at the ADP details, the gains were broad-based, with the manufacturing sector adding 9,000 jobs and construction adding 16,000. Within the services sector, the 72,000 gain in professional & business services was particularly encouraging, since jobs in that sector tend to be relatively well paid.’

However the currency was met by weakness again overnight as markets took a dovish position against the Federal Reserve in 2018.

While economists are still confident that the Fed will vote to raise interest rates multiple times over the coming year, investors appear to be less impressed by the plans as the Fed is no longer the only central bank in the game when it comes to monetary tightening.

Adding to these concerns is the ongoing political risk factor in the US, with markets remaining wary of the Trump presidency as he concludes his first year in the role.

Pound Weakened by Drop in Car Sales

Sterling failed to capitalise on the weakness in the US Dollar this morning however as the Society of Motor Manufacturers and Traders (SMMT) reported that new car sales in the UK fell in 2017 for the first time in five years.

The latest figures revealed that only 2.5million new cars were registered in the UK last year, a 5.7% decline from 2016, with diesel sales being hit particularly hard as they plummeted 17% in the wake of the emissions scandal and pollution concerns.

While the sharp decline in cars sales is unsurprising a major concern for the UK motor industry is also has wide repercussions for the UK economy as the Car industry is a major component of the UK’s manufacturing sector.

Investors also fear that this is further evidence that consumer spending is tightening as Brexit concerns and a growing gap between wages and inflation causes household to tighten their purse strings.

GBP USD Exchange Rate Forecast: Slew of US Data Ahead

The GBP/USD exchange rate may be met by considerable pressure later this afternoon as a bumper day of US data looks set to impact the pairing.

First up will be the latest Non-farm payroll figures, which some observers suggest could beat initial expectations to have slipped in December after yesterday’s stellar ADP employment report.

Also possibly lending strength to the US Dollar will be the release of the latest ISM Non-Manufacturing PMI, with economists forecasting an uptick in activity in the US services sector last month.

However USD could find its gains trimmed somewhat this afternoon, if they are undermined by the latest US trade balance, with analysts predicting that the nation’s trade deficit will have swollen from $48.7bn to $49.5bn.

Meanwhile GBP investors are likely to turn their focus to next week and the publication of the UK’s own trade balance, with a possible rise in Britain’s trade deficit likely to dampen the Pound.

Current Interbank Exchange Rates

At the time of writing the GBP USD exchange rate was trending around 1.35 and the USD GBP exchange rate was trending around 0.73.

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: Pound Dollar Forecasts