Home Daily Commentaries US dollar drops after US jobs data

US dollar drops after US jobs data

Daily Currency Update

The pound remains under pressure this morning as last week's comments from Bank of England Governor, Andrew Bailey, about the UK's economic outlook continue to weigh on sterling. On Thursday's interest rate decision, Bailey warned that the UK was heading into a recession that could potentially last up to two years during which the level of unemployment may double.

The BoE raised interest rates by 75bp as expected, however the Governor’s stark warning about the dark clouds hanging over the UK's economy saw the pound’s value drop. GBP/USD is trading around 1.1350 this morning after briefly touching 1.16 this time last Monday.

It’s a relatively quiet week on the data front from the UK, however we do get the first estimate of Q3 GDP on Friday morning which is expected to show a drop of -0.5% from the previous quarter. GBP/EUR sits at around 1.1420.

Key Movers

Tomorrow sees the US mid-term elections with the Republicans predicted to gain seats in both the Senate and the House of Representatives. Should this come to fruition, it could see former President Donald Trump formally announce he is running for office in 2024.

Despite the US economy performing relatively well compared to the UK or the Eurozone, high inflation and in particular the rising cost of petrol have seen President Biden's popularity dip throughout the year as the US battles a level of inflation not seen since the early 80s.

Thursday this week sees the latest print of US inflation with the Consumer Price Index expected to fall for a fourth consecutive month to 8% from its current 8.2%. Markets will be more interested in the core reading which strips out fuel and food costs and should this fall from last month’s 6.6% y/y, then it may give the Federal Reserve an opportunity to slow its pace of interest rate hikes at its December meeting.

Friday saw US jobs data paint a mixed picture with the monthly Non-Farm Payrolls number beating estimates, showing that 261k people gained employment in October. The better than expected number was countered though by the accompanying unemployment rate which went up to 3.7% from 3.5%.

Rumours continue to circulate that China is to drop its zero-Covid policy which has seen whole cities locked down for weeks on end, however, there has been no official confirmation that its policy will change. Should we see the Chinese hierarchy adopt an approach of trying to live with the virus then it could lead to gains in equity markets and help the depressed euro which continues to trade below parity versus the US dollar.

Expected Ranges

  • GBP/USD: 1.1310 - 1.1520 ▲
  • GBP/EUR: 1.1375 - 1.1540 ▲
  • GBP/AUD: 1.7590 - 1.7780 ▼
  • EUR/USD: 0.9890 - 1.0100 ▲