GBP/USD Pound Fails to Capitalize on Dollar Stumble Ahead of Brexit Votes

The US dollar is lower against most majors pairs on Friday after a massive miss in the U.S. non farm payrolls (NFP) report. The US economy only added 20,000 jobs when the forecast was calling for 180,000. Weather factors and for the most part the government shutdown had a lot to do with the disappointing data. The Trump administration was quick to point out the positives such as hourly earning beating the forecast at 0.4 percent. Revisions to the previous report were also upward changes. The size of the miss makes it likely that external factors contributed to the lower number.

The week had a dovish theme set by the Reserve Bank of Australia (RBA), followed by the Bank of Canada (BoC) and it was the European Central Bank (ECB) who further revised growth estimates. Central banks are getting worried, which is why despite the employment miss the US dollar was stronger on a weekly basis as investors see it as a safe haven.

Pound Drops Awaiting Vote as Brexit Anxiety Rises

The GBP/USD lost 0.56 percent on Friday. The currency pair is trading at 1.3008 after Theresa May’s Brexit package appears to be headed to another defeat on Tuesday, March 12. The European Union has shown some flexibility and offered to be open to an extension to the March 29 deadline and the definition of the Irish backstop.

The British Prime Minister has been pushing parliament to accept her proposal as a way to end the uncertainty of Brexit. Ms May has been publicly asking MPs to back the deal on the table, rather than await better terms with a no-deal deadline approaching. Though the no-deal exit is the worst case scenario due to the unknown factors, the parliament remains divided on how to exit, or if a divorce is the best solution in the first place.

The Brexit vote in the UK Parliament is the biggest risk event during the week, but also of note are the release of the US retail sales and inflation data. Sales have been underperforming despite job gains in the United States and although several inflation indicators keep hinting at pressures to the upside, the core CPI could show a minimal gain on Tuesday.

Bank of Japan to Join Choir of Doves

The Bank of Japan (BOJ) is expected to join the dovish choir of central banks on Friday, March 15. The CB headed by Kuroda has thrown the monetary policy handbook at the economy with stimulus measures that include bond buying and stock buying without much to show for it. The JPY remains strong given its status as a save haven.

The JPY rose 0.36 percent versus the dollar on Friday. The yen was able to capitalize on the stumble of the USD and was the only currency to score a weekly gain of 0.65 percent on a weekly basis versus the greenback. The appeal of the currency as a safe haven was the decisive factor as dovish rhetoric and growth forecast downgrades have increased the appeal of the dollar over other currencies.

European growth has cooled down, with growing concerns about Germany as its manufacturing sector, auto in particular, could be under threat if the US follows through its car tariff threats. Brexit concerns are on the rise as a amicable split was almost ruled out immediately and the market was presented instead with a long ugly divorce, that in the end could just bring the couple back together.

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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