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GBP to USD Exchange Rate Drops from Weekly Highs on US Non-Farm Payrolls

November 1, 2019 - Written by Minesh Chaudhari

Despite a lack of highly optimistic UK news in the past week, the British Pound to US Dollar (GBP/USD) exchange rate has seen firm gains and has even recovered much of the previous week’s losses due to concerns about uncertainty in the Federal Reserve outlook. The Fed’s tone was mixed last week, as it indicated it may not cut rates again for a while but stopped short of saying that its rate cut cycle had come to an end.

With the Fed outlook still uncertain and seemingly leaning towards dovish, GBP/USD has climbed from this week’s opening levels of 1.2826 and currently trends closer to the level of 1.2950.

GBP/USD has been so far unable to recover all of last week’s losses to the level of 1.2978, but it has gotten close. The pair is also less than half a cent below last week’s 5 month best of 1.3008.

GBP Exchange Rate Appeal Limited amid Election Uncertainty and Mixed UK Data

Investors have been hesitant to sell the Pound in the last week, as the latest developments in Brexit and UK politics have been widely perceived as making the risk of a worst-case scenario no-deal Brexit less likely.

At the beginning of the week, the EU confirmed a Brexit date delay until the 31st of January, and UK Parliament followed by confirming a fresh general election.

Britain will head to the polls for the 2019 General Election on the 12th of December, the first December general election in a century.

Hopes that the most popular parties were unlikely to aim for a no-deal Brexit, as well as hopes that the ruling Conservative Party would win the election and pass its relatively soft Brexit deal, have kept the Pound buoyed.

However, the British currency’s potential for gains has been limited by market expectation for a month of election jitters and uncertainty, as well as the latest UK ecostats,

Britain’s October manufacturing PMIs, published today, came in a little better than expected, but still caused concern that Britain’s manufacturing sector was holding back the economy amid Brexit uncertainty.

According to Ruth Gregory, Senior UK Economist at Capital Economics:

‘While the manufacturing PMI recovered in October from September’s extremely weak level, it is still consistent with a recession in the manufacturing sector.

Overall, it seems likely that the manufacturing sector has remained a drag on GDP growth at the start of the fourth quarter. And with the other sectors showing little growth, we are expecting the economy to expand by no more than 0.2%-0.3% q/q in the next few quarters.’

USD Exchange Rates Avoid Losses as Non-Farm Payrolls Report Beats Forecasts/h3>

The Pound’s gains against the US Dollar slowed a little this afternoon, as investors digested a stronger than expected US Non-Farm Payrolls report.

Seen as a strong indication of the US’ economic strength, there were a higher number of new Non-Farm Payrolls than expected in October, coming in at 128k. The unemployment rate worsened to 3.6% as expected.

This came despite strikes, and job losses in the US manufacturing sector.

Due to the stronger than expected Non-Farm Payrolls data, speculation that the Federal Reserve could keep cutting US interest rates lightened slightly.

Fed rate cut bets became more uncertain after the bank stopped short of saying its rate cut cycle had come to an end following 2019’s third rate cut on Wednesday. According to Josh Wright, Chief Economist at iCIMS:

‘Still-low jobless claims continue to signal a labour market that won’t quit, even if it does appear to be slowing down,

Yes, toxic uncertainty continues to present a real risk, but overall the US economy appears resilient.’

GBP/USD Exchange Rate Forecast: Election Jitters and US Data in Focus

While the US Non-Farm Payroll report beat expectations, there are still signs of slowdown in the US economy meaning Pound to US Dollar exchange rate investors could be influenced by upcoming key US data.

US factory orders will be published on Monday, with trade and non-manufacturing PMI data following on Tuesday. Michigan confidence data and wholesale inventories will come in on Friday.

These stats could bolster US Dollar demand if they beat expectations, as this would soften Federal Reserve easing speculation. On the other hand, if they disappoint investors Fed rate cut bets could rise and the US Dollar would weaken.

Most of next week’s most influential data will be US data, but there are some notable UK ecostats due out as well.

UK services PMI stats will come in on Tuesday, and the Bank of England (BoE) will hold its November policy decision on Thursday.

However, amid political uncertainty as Britain’s political parties campaign for December’s general election, these factors are unlikely to influence the Pound to US Dollar exchange rate too much.
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