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GBP to USD Exchange Rate Sees Late-Week Jump on US Non-Farm Payrolls and Trade Concerns

April 6, 2018 - Written by Minesh Chaudhari

Markets didn’t react too favourably to the latest US Non-Farm Payroll results, which came in well below expectations in most prints. As a result, the British Pound to US Dollar (GBP/USD) exchange rate saw some gains towards the end of Friday’s European session and was on track to sustain gains.

After slipping from 1.4131 to 1.4013 last week on a rebound in US Dollar strength, GBP/USD fluctuated for most of last week, but touched a weekly high of 1.4097 on Friday afternoon before European markets close.

GBP Climbs on UK Outlook despite Underwhelming UK Data

Last week’s UK data was underwhelming and caused the Pound to US Dollar exchange rate to trend below the week’s opening levels towards the end of the week.

However, Pound investors remained optimistic that the Brexit process would unfold more smoothly now, and Sterling has also been supported by bets that the Bank of England (BoE) will hike UK interest rates again as soon as May.

The Pound outlook has been higher since late-May, when the UK and EU agreed to a post-Brexit transition period. This news caused ‘cliff-edge’ and ‘hard Brexit’ scenario concerns to lighten notably.

While recent UK data has caused some concern that Britain’s economy may not be able to support much hawkishness from the Bank of England over the coming year, investors remained optimistic enough on the Pound outlook.

USD Sold as US Non-Farm Payroll Report and Trade News Concern Investors

Friday saw the publication of March’s US Non-Farm Payroll results, which fell short of analyst forecasts and left the US Dollar weaker. This helped GBP/USD to more easily advance.

The headline US Non-Farm Payroll figure was forecast to slow from 313k to 193k. While the previous figure was revised higher to 326k, the March figure slowed to 103k – well below the recent average of 202k.

US average wages did do slightly better than expected in March, rising at 0.3% month-on-month rather than the expected 0.2%.

However, the US NFP report’s influence on the US Dollar was only part of its weakness. Market anxiety about the possibility of a ‘trade war’ unfolding between the US and China also weighed on USD.

The US and China ramped up combative rhetoric against each other’s trade actions in recent sessions, keeping markets anxious and keeping pressure on the US Dollar.

According to Craig Erlam from OANDA;

‘The US jobs report was somewhat overshadowed this week by the ongoing back and forth between the world’s two largest economies which has threatened to disrupt the period of strong growth the global economy is seeing,’

GBP/USD Forecast: US Inflation and Trade Developments in Focus

As next week’s UK data won’t be particularly influential, the Pound to US Dollar exchange rate may be more likely to be influenced by US news and US Dollar strength in the coming sessions.

With markets still anxious about how trade tensions between the US and China may continue to unfold, the US Dollar is likely to continue to be influenced by trade news.

The datasets most likely to influence the Pound to US Dollar exchange rate next week will be US figures.

Wednesday will see the publication of US Consumer Price Index (CPI) results from March, as well as the Federal Reserve’s latest meeting minutes.

UK trade data and production stats will also be published on Thursday and could help extend recent Sterling strength if they impress.

Overall though, the Pound to US Dollar exchange rate is likely to be most influenced by US inflation data and developments on US-China trade tensions.
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