The GBP/USD exchange rate was significantly higher after a key US jobs report versus market expectations tempered expectations of a US rate hike by the Federal Reserve. Rising wages could limit any negative pressure on the greenback. The upward rebound gains for the GBP/USD currency pair, after the data, reached the 1.3850 resistance level, near its highest in 14 months. This is a peak from which we rebounded during the trading of the middle of last month, amid profit-taking sales with losses, towards the support level 1.2591, before it recovered since the start. This month's trading, where the sterling got a strong impetus from the future of raising interest rates from the Bank of England.
Overall, the US dollar was sold off broadly in the wake of news that came immediately with a US non-farm payroll reading of 209K in June, down from 306K in the previous month and below expectations of 225K before losses were trimmed as it was absorbed. More details from the labor market report. It is important to note that this is the first time in 15 months that the report has fallen short of expectations, which could give additional downward weight to the US interest rate outlook.
Commenting on the event and reaction. “If the market sees even the smallest indication that the US labor market is not as strong as expected, I would expect to see dollar weakness,” says Antje Praefcke, forex analyst at Commerzbank.
The data deficit will come as a surprise to a market that has been revising higher expectations for this report given Thursday's consensus Labor Market Survey readings, which included a large outperformance from the ADP survey. But the US Nonfarm Payrolls number will be considered as the final word on the matter and is likely to push the markets to reconsider the US Federal Reserve's second interest rate hike after a potential hike in July. However, the US economy remains in a strong state despite slowing employment growth and thus further gains are expected in July. However, the US dollar will find some defense in other elements of the report, which include the country's unemployment rate falling to 3.6% and wages rising to 0.4% on a monthly basis, which was higher than expectations.
Kathryn Judge, economist at CIBC Capital Markets, says: “The cooling in US employment is a welcome development, but the pace is still higher than the rate of growth in the working-age population, combined with persistent wage pressures and low unemployment, leaving the Federal Reserve On track to raise interest rates by 25 basis points in July and September to hit the station.
The next major event for the dollar will be this week's US inflation reading, which should anchor expectations about the Fed's future moves. According to analysts, “Inflation numbers will paint a clearer picture of the Federal Reserve’s next steps, but today’s numbers indicate that it will not only raise US interest rates later this month, but it may have to go further than it hoped in the coming months if it does not start.” The labor market is showing signs of weakness.”
This week the UK will take center stage as bets on interest rates in the Bank of England have risen to their highest level in a quarter of a century. Any implications for the financial stability of such speculation could be seen in the latest systemic risk assessment and stress tests by the central bank, which will be released next Wednesday, along with a press conference by Bank of England Governor Andrew Bailey. The governor will also deliver a speech on Monday. Data showing the strength of British wages and the labor market on Tuesday will also guide investors in gauging UK inflation. The GDP figures for May will be released two days later.
Sterling forecast against the dollar today:
- Friday's move is important for the bulls to control the direction of the GBP/USD currency pair.
- Extending its gains may push the bulls quickly towards the psychological resistance level of 1.3000, which confirms the strength of the bulls' control over the trend.
- On the other hand, according to the performance on the daily chart below, the bullish hopes will evaporate if the GBP/USD moves towards the support level of 1.2580 again.
Today, the currency pair will be affected by the reaction to the latest US jobs numbers and the Bank of England governor's statements.
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