Pound Surges on Weak US Non-Farm Private Payroll Data

The US dollar declined sharply against its peers after data indicated that the country’s economy added far lesser jobs than consensus estimates for April. Specifically, the long-awaited non-farm payrolls (NFP) data reflected 266,000 job additions in April, far lower than the 978,000 job additions anticipated by the market.

The market worries increased with the downward revision of the March figures to 770,000. The astonishingly frail number will raise mistrust on the US economic rebound and affirms that for the greenback, the country’s economic robustness is mirroring in the strength of the US dollar.

The GBP/USD exchange rate surged by 0.5% to 1.3970 within five minutes from the release of the US non-farm payroll data.

Marc Chandler, a strategist at Bannockburn Global Forex, opined that it is hard to provide a reason for such a huge NFP data miss as all other indicators signaled a roaring economy. Yields are rising after a quick decline, the analysts said in disbelief.

The EUR/USD exchange rate, in the meantime, surged to 1.2130 and seems to be on course to hit the April 21 peak level of 1.2150 in the days ahead. The employment data was thoroughly unimpressive, with the jobless rate for April inching higher to 6.1% in April, from 6% in March, missing the forecasts for a decline in unemployment rate to 5.8%.

Katherine Judge, an economist at CIBC Capital Markets, has opined that the weak data was comparatively broad based with goods industry recording losses in April. The only sector that posted notable gains in jobs was leisure and hospitality sector, with government turning out to be the next top performer. Based on job data, Ms. Judge forecasts Fed to maintain the dovish stance, but expects robust job gains in the months ahead.

Back in March, the US Federal Reserve stated that they would maintain benchmark interest rates unaltered and continue with the current quantitative program until there is certainty that the employment market is on track to a lasting recovery.

The Fed necessitates a series of strong job data as a pre-condition for the market to start considering upward revision of interest rates. It seems that the Forex market is trading the US dollar in line with the Fed’s rhetoric reflecting a step back from ‘dovish’ outlook, but Friday’s job data will certainly cause some changes in market expectations.

Paul Craig, portfolio manager at Quilter Investors, said The Federal Reserve will feel justified in its overly conservative approach, and its dovishness will be maintained for quite a while longer, following the private payrolls data.

The concern for those following the Dollar would be whether the market will reverse the Friday movements after betting that the negative report is an exceptional case in a broader upward pattern.

Craig opined that it is better to avoid giving too much importance to the US non-farm payrolls data in spite of the big miss. Investors should look at the complete picture and while this might indicate that the economic rebound is not as speedy as it could be, there are aspects to be less worried.

Prudent investors don’t foresee further misses such as this in the future, referencing survey information that proves people are still at home and relying on the government’s assistance during the global epidemic.

Craig points out that once the assistance ends people will return to work. Additionally, the count of hours worked by those who are currently employed is rising, whilst the jobless rate is declining.

Those studying the GBP/USD pair should note that the exchange rate has been on a retreat from April 20 and the entire price movement is centered on a mid-point of ~1.3870.

Price spikes are likely to fade in the near term, and average reversions against this pivot can be expected, so the rally seen on Friday may be overturned in the days ahead.

Sarah House, Senior Economist at Wells Fargo Securities, opined that she anticipates the employment rebound to be back on course in the forthcoming months and the Fed to stay unmoved for some more time with respect to tightening policy.