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GBP/USD Forecast: Pound to US Dollar Exchange Rate Rallies on Major Non-Farm Payrolls Slowdown

May 7, 2021 - Written by Frank Davies

Pound (GBP) Exchange Rates See Limited Support as UK Construction PMI Slips



The Pound to US Dollar (GBP/USD) exchange rate stumbled slightly on the back of a weaker-than-expected UK construction PMI.

While forecasts had pointed towards the PMI strengthening to 62.3 in April it instead dipped from 61.7 to 61.6, suggesting a slight loss of momentum.

Even so, this still demonstrated a solid month of growth for the construction sector at the start of the second quarter.

As the sector only accounts for a small fraction of the UK gross domestic product, though, the impact of the data ultimately proved limited.

US Dollar (USD) Exchange Rates Slump Sharply Thanks to Major Payrolls Miss



Demand for the US Dollar weakened significantly, however, as April’s non-farm payrolls figure fell significantly short of forecast.

Although investors expected to see a 978,000 increase in the headline payrolls figure it instead clocked in at just 266,000, representing a major slowdown in employment growth.

This left USD exchange rates exposed to a fresh bout of selling pressure, with the labour market shown to be in a weaker state than anticipated.

As the corresponding unemployment rate also unexpectedly picked up to 6.1%, rather than falling as expected, the mood towards the US Dollar naturally soured.

With the ongoing pandemic showing further signs of weighing on the strength of the US labour market the GBP/USD exchange rate rallied sharply.

GBP/USD Exchange Rate Forecast: Strong UK House Price Growth to Support Pound Gains



The Pound could find additional support on Monday with the release of April’s Halifax house price index.

If house prices continue to gain momentum at the start of the second quarter this may encourage a greater degree of confidence in the economic outlook.

Stronger levels of housing market activity could bolster hopes of a stronger quarterly growth rate to come, giving the GBP/USD exchange rate a fresh boost.

On the other hand, any weakening in house price growth momentum may give investors some reason to sell out of the Pound at the start of the week.

Support for the US Dollar, meanwhile, may start to recover if the latest NFIB business optimism index shows an uptick.

Evidence of growing confidence within the US economy, even in the wake of the poor labour market data, could see the Pound to US Dollar exchange rate losing ground.
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