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GBP to USD Exchange Rate Climbs on Expectations of Weaker US Non-Farm Payroll Report

June 7, 2019 - Written by James Fuller

Despite a lack of particularly supportive UK news this week, the British Pound to US Dollar (GBP/USD) exchange rate is on track to sustain solid gains as investors sell the US Dollar. Rising bets of Federal Reserve interest rate cuts and expectations for weaker US data are keeping the US currency unappealing.

Since opening this week at the level of 1.2633, GBP/USD has put in over half a cent of gains due to US Dollar weakness. While GBP/USD has not been able to hold Wednesday’s fortnight high of 1.2740, the pair was still on track to sustain notable gains this week and trended closely to the level of 1.2717 at the time of writing on Friday morning.

The primary cause of the pair’s gains this week has been broad weakness in the US Dollar. Investors are expecting the US economy will continue to be negatively impacted by slowing global growth and trade protectionism, leading to Federal Reserve interest rate cut bets.

GBP Exchange Rates Avoid Further Losses as Analysts Predict No-Deal Brexit Still Unlikely


The Pound plummeted throughout May, but investors seem hesitant to keep selling the British currency even lower despite a lack of solid support for the British currency.

Investors have been buying the Pound back from its cheapest levels in profit-taking this week, but its potential for gains has been limited. The Pound is range-bound as markets anticipate solid developments in British politics.

UK Prime Minister Theresa May stepped down as leader of the Conservative Party today, though she will remain Prime Minister until her successor is confirmed.

The Conservative Party leadership contest will officially begin next week, with Brexiteer Boris Johnson is front-runner to win the contest. As an advocate for a harder Brexit, market jitters of a possible no-deal Brexit have returned.

However, analysts generally predict that a no-deal outcome is still among the less likely outcomes, as support for a harder Brexit would still see significant opposition from the rest of UK Parliament.

According to Petr Krpata, Chief EMEA Currency Strategist at ING:

‘A PM who supports hard Brexit does not necessarily mean a hard Brexit being materialized,

There appears no majority in the Parliament for hard Brexit and also the PM, when elected, may loosen his or her current hard Brexit stance.’


As a result, the Pound is avoiding deeper losses.

USD Exchange Rates Weaker as Investors Expect US Slowdown


Still recoiling from its strong performance earlier in the year, the US Dollar has been trending lower against many major rivals this week.

The primary cause of US Dollar losses has been rising bets that the Federal Reserve will cut US interest rates at some point over the next year, due to rising US trade protectionism and concerns that the US economy is slowing.

Federal Reserve officials, including Fed Chairman Jerome Powell, have said that the bank will act as appropriate on these factors, signalling that the bank may be considering an interest rate cut some time soon.

The US Dollar remained weak on Friday morning as investors anticipated the day’s key US Non-Farm Payroll results. The influential job report often has an impact on Federal Reserve monetary policy.

Following disappointing job data from ADP earlier in the week, analysts expect the NFP report to show slowdown in the key US job sector too. According to analysts from Morgan Stanley:

‘The downside surprise in the ADP report implies downside risks around our forecast as well as the consensus expectation for the non-farm payrolls report on Friday, which both fall out of the average error range of the ADP report,’


GBP/USD Exchange Rate Forecast: Non-Farm Payroll in Focus before Markets Close


With the Pound likely to remain volatile in anticipation of the formal Conservative Party leadership contest, the Pound to US Dollar exchange rate will be driven mostly by US data and movement in the US Dollar before markets close for the week.

US Dollar investors are highly anticipating May’s US Non-Farm Payrolls report, and if the data shows fresh weakness in the US economy as some analysts predict then it could lead to further late-week gains for GBP/USD.

The change in Non-Farm Payrolls is currently forecast to have slowed from 263k to 185k.

Also on the way this afternoon is US wholesale inventories data from April.

Looking ahead to next week, Pound to US Dollar exchange rate is most likely to react to the Conservative leadership contest, as well as upcoming US inflation and retail sales stats that could influence Federal Reserve interest rate hike bets if they surprise.
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