Home Daily Commentaries US dollar regains strength following positive Non-Farm Payroll data

US dollar regains strength following positive Non-Farm Payroll data

Daily Currency Update

The US dollar was on the back foot last week, however managed to end higher than most of its major counterparts. The move upwards for USD was likely driven by the NFP report which gave the markets optimism, while FOMC policymakers suggested that interest rate cuts will be off the table. The forward guidance and positive tone from the members resulted in the USD regaining strength Friday as they spoke of a stronger US economy.

Nonfarm payroll refers to the number of jobs in the private sector and government agencies. It excludes farm workers, private household employees, proprietors, non-profit employees, and actively serving military. The headline non-farm payroll report exceeded expectations at 339K against the 180K expected, surpassing April's upwardly revised 294K.

The odds of a June interest rate hike remain low as the latest US jobs report will likely give the Federal Reserve a reason to pause.

Key Movers

The euro retreated as German inflation massively undershot expectations for May, with France following suit. Inflation fell to 6.1% in May, from 7% previously, following a broad moderation that left the annual pace of price growth running below the 6.3% expected from economists.

With the US dollar potentially on the verge of making a comeback, emboldened by the rethink around the Fed’s rate path and some cheerful data, we will keep a close eye on the USD this week.

Sterling has now risen by 3.0% against the euro in 2023, taking the exchange rate to its highest level since December. Rising UK yields and a relative underperformance in the Eurozone following softer-than-expected Eurozone inflation releases have helped keep the pound trading higher.

Some views throughout 2023 have been that UK interest rate pricing has been far too calm given the obvious price and wage pressures in the UK economy. The Bank of England’s inflation target is still 2%.

Expected Ranges

  • GBP/USD: 1.2350 - 1.2480 ▲
  • GBP/EUR: 1.1550 - 1.1700 ▲
  • EUR/USD: 1.0620 - 1.0720 ▲