NFP falls short of expectations, with significant downward revisions to previous months. Expectations for Fed tightening have diminished as yields exert pressure on the US Dollar. Political uncertainty and speculation regarding intervention contribute to heightened volatility in Cable. The Pound Sterling registers solid gains against the US Dollar on Thursday following the latest US employment report, which fell short of estimates and diminished the likelihood of a Federal Reserve rate hike. At the time of writing, the GBP/USD pair is trading at 1.3359, reflecting a decline of 0.64%, marking its peak level over the past ten days.
The US jobs market exhibited a slight weakening in June, as Nonfarm Payrolls registered at 57K, falling short of the anticipated 110K estimates. May’s numbers were revised downward from 172K to 129K, while April’s data were adjusted from 179K to 148K. The Unemployment Rate ticked lower from 4.3% to 4.2%, yet analysts attribute this decrease to a decline in labour force participation, which has fallen to 61.5%, the lowest level since March 2021. Money markets recalibrated their expectations regarding Federal Reserve tightening, with investors anticipating a mere 23 basis points of increase by year-end, as indicated by Prime Terminal data.
US Treasury yields are trending downward, with the 10-year T-note yields at 4.461%, a decrease of 2 basis points, presenting a challenge for the Greenback. The US Dollar Index, which tracks the buck’s performance against a basket of six currencies, is down 0.65% at 100.75. US Factory Orders experienced a contraction in May, primarily attributed to a decrease in commercial aircraft orders. The figures fell to -1.3%, which was better than the anticipated -1.8%, yet represented a significant decline from April’s impressive 5.3% reading. Mary Daly of the San Francisco Fed remarked on the encouraging indicators regarding the US economy, acknowledging that elevated prices have been driven by tariffs and the oil price shock. She added that the policy is “slightly restrictive,” yet acknowledged that there are circumstances in which the Fed must combat inflation.
In the UK, the economic agenda was notably lacking, yet attention is directed towards Andy Burnham, who is regarded as the frontrunner to replace the incumbent Prime Minister, Keir Starmer. Traders exhibit a degree of caution regarding Cable, reflecting the prevailing uncertainty surrounding Burnham’s policies. Meanwhile, the GBP continues to benefit from the decline in oil prices and speculation regarding potential intervention by Japanese authorities in the foreign exchange markets, as the USD/JPY pair has decreased from approximately 162.50 to 160.95 at the time of writing.