US Employment Numbers Disappoint Boosting Pound to Month High

The United States shutdown forced the delay in the release of the non-farm payroll report on the first friday of the month. Today the figures were released and they were mixed. The jobs added to the US economy disappointed as they came well below expectations at 148,000. The forecast was around 180,000 new jobs. On the positive side the overall unemployment declined from 7.3% to 7.2% but that has more to do with participation rate that continues to be the lowest in over 30 years at 63.2%.

The GBP has appreciated strongly in the past two weeks. Given the political issues in the US flow have exited the country and demand for the Pound has risen. Good economic indicators in the UK have boosted the currency versus the US Dollar. Gross Domestic Product growth was 0.8% and the IMF upgraded its forecast even as it gloomily downgraded global forecasts. The UK recovery is moving at a moderate pace, but given the speed of recovery around the world, only the Asian economies are showing a higher speed.

September’s weak NFP figure puts in question the likelihood of the US Federal Reserve starting their tapering program in October. Reducing the amount of bonds the central banks buys is the turning point for global rates at an all time low. The plan was for the Fed to start this year with a forecasts rate increase in mid 2014. Given how the US political and fiscal debates have hurt its credibility and potential credit rating the demand for the Dollar has suffered and the major currencies have taken advantage.

Earlier today the UK posted a smaller forecasted budget deficit in September. UK Chancellor to the Exchequer George Osbourne has touted the commitment to austerity and it seems that its finally paying off as the main driver in the lower deficit was a reduction of government department spending.

The combination of solid UK economic data and the continuation of the US pain resulted in strong week for the pound. From a low of 1.5894 it was able to record a 1.6% gain to reach highs of 1.6225 in the time period between October 15 and 22.

The Bank of England minutes tomorrow will add more optimism about the pace of the UK economic recovery, even if some housing bubble concerns are raised. Thursday’s speech by Governor Carney will prepare the market for the main UK indicator this week when on Friday the GDP figures for the third quarter are released.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza