Pound Sterling to Dollar Forecast: Fed Rate Hike Bets Fade After Payrolls Shock

– Written by


Frank Davies

STORY LINK Pound Sterling to Dollar Forecast: Fed Rate Hike Bets Fade After Payrolls Shock

The Pound to Dollar exchange rate (GBP/USD) surged to two-week highs above 1.3380 after a much weaker-than-expected US jobs report prompted investors to sharply scale back expectations of a near-term Federal Reserve rate hike.

The disappointing payrolls data triggered broad Dollar selling, while speculation over possible Japanese intervention in the yen added further pressure to the US currency.

GBP/USD Forecasts: 2-Week Highs

After surging to above 1.3350 in early Europe on Thursday, the Pound to Dollar (GBP/USD) exchange rate dipped to near 1.3300 before a fresh surge to 2-week highs above 1.3380 after a weaker than expected US jobs report.

The dollar was also hampered by speculation surrounding Japanese intervention to strengthen the yen, especially with US markets closed for the Independence Day holiday on Friday.

ING commented; “One wild card to consider is that should the data come in soft, Japanese authorities might use the opportunity to sell a lot of USD/JPY – thus, traders will have to stay agile.”

Bank of America is not convinced over the GBP/USD outlook, but notes that any break above the 1.3510-1.3600 area could trigger a strong advance to 1.40.

US non-farm payrolls increased 57,000 for June compared with consensus forecasts of around 115,000 while the May increase was revised down to 129,000 from the 172,000 reported initially.

According to the household survey, the unemployment rate edged lower to 4.2% from 4.3%, but there was a sharp decline in the participation rate and the number of people employed posted a sharp 500,000 decline on the month with over 800,000 people not in the labour force.

There was a shift in Federal Reserve expectations following the data with traders pricing in less than a 50% chance of a rate hike by September.

Annex Wealth Management Chief Economist Brian Jacobsen commented; “(Fed Chairman) Warsh can wipe his brow. The labor market isn’t overheating. Inflation expectations are moderating. It means the Fed can take the whole summer off it wants as it won’t have to hike or cut.”

There were no major UK developments during the day with long-term fiscal concerns not on the agenda at this stage.

ING commented; “There is probably also the view that UK politics may not come back to weigh on sterling until the end of this month or in August.”

It noted the medium-term risk profile; “New policy ideas could start to emerge in August. As Keir Starmer found, the UK fiscal straitjacket very much limits room for manoeuvre, and it is hard to see any major spending plans coming through without tax rises.”

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TAGS: Pound Dollar Forecasts