Pound to Dollar Exchange Rate Rises as US Jobs Report Falls Short of Expectations

The Pound to Dollar exchange rate experienced a notable increase following the release of a key US jobs report that fell below market expectations. The disappointing data prompted a decrease in expectations for Federal Reserve interest rate hikes. However, the rise in wages may mitigate downside pressures on the Dollar.

Following the announcement that the US non-farm payroll figure stood at 209,000 in June, down from 306,000 the previous month and below the anticipated 225,000, the Dollar faced widespread selling. However, the currency pared its losses as further details from the labor market report were analyzed.

Market Analysts’ Insights:

Antje Praefcke, FX Analyst at Commerzbank, noted that any indication of the US labor market’s weakness could result in a weaker Dollar. The report’s undershoot came as a surprise to the market, which had revised its expectations upward based on above-consensus labor market survey readings leading up to the release.

Despite the slowing employment growth, the US economy remains strong. A rate hike in July is expected, and the Dollar may find support from other aspects of the report, such as a decrease in the unemployment rate to 3.6% and an increase in wages by 0.4% m/m, surpassing expectations.

According to Katherine Judge, an economist at CIBC Capital Markets, the cooling employment growth is welcomed, but it still outpaces the growth in the working-age population. With continued wage pressures, a drop in the unemployment rate, and a strong overall economy, the Federal Reserve is expected to proceed with a 25 basis points rate hike in both July and September.

Insights from Richard Carter, head of fixed interest research at Quilter Cheviot, suggest that although the US economy faces some challenges, the jobs market remains stable. Carter believes that the slight dip in the unemployment rate to 3.6% and the moderate jobs growth of 209,000 in June are unlikely to deter the Federal Reserve from proceeding with a rate hike later this month.

Next week’s inflation figures will provide further clarity on the Federal Reserve’s future actions. Analysts anticipate that the upcoming data will solidify expectations for the central bank’s next steps. Richard Carter suggests that if the labor market fails to show signs of weakening, the Federal Reserve may need to go beyond its initial plans in the coming months.