GBP/USD – Pound Rises as US Nonfarm Payrolls Sinks

After a quiet start on Friday, GBP/USD has posted gains in the North American session. Currently, the pair is trading at 1.3330. It’s been a busy day on the release front. British Construction PMI improved to 49.2 points, beating the estimate. Over in the US, the US Nonfarm Payroll report shocked the markets as it plunged to just 151 thousand, well short of expectations. Elsewhere on the labor front, Average Hourly Earnings dipped to 0.1% and the unemployment rate edged up to 4.9%.

Ever since the shock of the Brexit referendum vote, there have been widespread fears about the negative effect that Brexit would wreak on the British economy, and the R-word (recession) has been whispered. Indeed, the Bank of England pulled out all the stops in August, lowering interest rates to an all-time low of 0.25% and expanding its asset-purchase program. However, third quarter British data remains solid and continues to defy the doomsayers. Construction PMI improved to 49.2 points, easily beating the forecast of 46.6 points. This marked a 3-month high, and is close to the 50 point-level which separates contraction from expansion. Earlier this week, Manufacturing PMI jumped to 53.3 points, indicator’s strongest reading since October 2015. On the consumer front, British consumer confidence showed improvement in August and even beat the market forecast. The reading of minus -7 points to pessimism, but marked a sharp improvement over the July reading of minus -12 and edged above the estimate of minus -8. The British consumer continues to shop and spend, as underscored by strong readings from CBI Realized Sales and retail sales. Recent inflation and employment numbers have also been solid. The British pound, which was hammered after the Brexit vote, has improved 3 percent since August 15.

A dismal Nonfarm Employment Change report has soured market sentiment, following solid employment numbers earlier in the week. The ADP Employment Nonfarm Employment Change and unemployment claims both were within expectations. However, August job data is often unreliable and tends to miss market forecasts, as was the case with Friday’s key job indicators. Will the Fed be in a generous mood and ignore the NFP release, which plunged from 255 thousand to 151 thousand? Even if the August payrolls release is overlooked, the Fed will find it hard to justify a rate increase strictly based on a robust job market.  Stronger inflation numbers for August, for example, would make a rate hike an easier sell for Fed members who remain uneasy about raising rates. These indicators will be released in mid-September, just before the Fed policy meeting on September 21. For those traders tracking the odds of a rate hike in 2016, the CME Group FedWatch tool, the likelihood of a September hike has dropped to 24 percent, while a December increase is pegged at 56 percent.

GBP/USD Fundamentals

Friday (September 2)

  • 4:30 British Construction PMI. Estimate 46.6. Actual 49.2
  • 8:30 US Average Hourly Earnings. Estimate 0.2%. Actual 0.1%
  • 8:30 US Nonfarm Employment Change. Estimate 180K. Actual 151K
  • 8:30 US Unemployment Rate. Estimate 4.8%. Actual 4.9%
  • 8:30 US Trade Balance. Estimate -43.0B. Actual -39.5B
  • 10:00 US Factory Orders. Actual 2.1%

*All release times are EDT

* Key events are in bold

GBP/USD for Friday, September 2, 2016

GBP/USD September 2 at 9:05 EDT

Open: 1.3274 High: 1.3345 Low: 1.3252 Close: 1.3331

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3142 1.3219 1.3327 1.3480 1.3533 1.3667
  • GBP/USD recorded small gains in the Asian session and retracted in the European session. The pair has posted considerable gains in North American trade
  • 1.3327 has switched to a support role following gains by GBP/USD on Friday. It is a weak line
  • 1.3480 is a strong resistance line

Further levels in both directions:

  • Below: 1.3327, 1.3219 and 1.3142
  • Above: 1.3480, 1.3533 and 1.3667
  • Current range: 1.3327 to 1.3480

OANDA’s Open Positions Ratio

GBP/USD ratio is showing slight gains in long positions on Friday. Long positions have a majority (54%) indicative of trader bias towards GBP/USD moving to higher levels.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.