Home GBP GBP/USD: Will US Jobs report Boost Dollar vs. Pound?

GBP/USD: Will US Jobs report Boost Dollar vs. Pound?

7th December 2018

The pound charged higher versus the US dollar across the course of Thursday. Easing fears of a no deal Brexit helped boost the pound. Meanwhile trade tensions and weaker US data weighed on the dollar. The pound US dollar exchange rate hit a peak of US$1.2809 on Thursday.

What do these figures mean?
When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.For example, it could be written:1 GBP = 1.28934 USD Here, £1 is equivalent to approximately $1.29. This specifically measures the pound’s worth against the dollar. If the US dollar amount increases in this pairing, it’s positive for the pound. Or, if you were looking at it the other way around:1 USD = 0.77786 GBP In this example, $1 is equivalent to approximately £0.78. This measures the US dollar’s worth versus the British pound. If the sterling number gets larger, it’s good news for the dollar.

What do these figures mean?

When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.For example, it could be written:1 GBP = 1.28934 USD Here, £1 is equivalent to approximately $1.29. This specifically measures the pound’s worth against the dollar. If the US dollar amount increases in this pairing, it’s positive for the pound. Or, if you were looking at it the other way around:1 USD = 0.77786 GBP In this example, $1 is equivalent to approximately £0.78. This measures the US dollar’s worth versus the British pound. If the sterling number gets larger, it’s good news for the dollar.

The pound moved higher in the previous session as concerns of the UK crashing out of the EU without a deal continued to recede. Since Parliament voted to give itself the right to decide what happens next in the case of a defeat for Theresa May’s Brexit deal, the pound has been moving higher. This move dramatically reduces the probability of a no deal, hard Brexit.

Why is a “soft” Brexit better for sterling than a “hard” Brexit?
A soft Brexit implies anything less than UK’s complete withdrawal from the EU. For example, it could mean the UK retains some form of membership to the European Union single market in exchange for some free movement of people, i.e. immigration. This is considered more positive than a “hard” Brexit, which is a full severance from the EU. The reason “soft” is considered more pound-friendly is because the economic impact would be lower. If there is less negative impact on the economy, foreign investors will continue to invest in the UK. As investment requires local currency, this increased demand for the pound then boosts its value.

Why is a “soft” Brexit better for sterling than a “hard” Brexit?

A soft Brexit implies anything less than UK’s complete withdrawal from the EU. For example, it could mean the UK retains some form of membership to the European Union single market in exchange for some free movement of people, i.e. immigration. This is considered more positive than a “hard” Brexit, which is a full severance from the EU. The reason “soft” is considered more pound-friendly is because the economic impact would be lower. If there is less negative impact on the economy, foreign investors will continue to invest in the UK. As investment requires local currency, this increased demand for the pound then boosts its value.

UK Prime Minister continued her relentless campaigning for her Brexit plan. However, several cabinet ministers were also trying to persuade Theresa May to postpone the vote in Parliament. The concern is that the defeat could be so huge and damaging that the government could implode. The idea being that if she delays the vote, Theresa May would buy herself more time to return to Brussels to negotiate a deal that was more palatable for Parliament.

Theresa May has rejected the idea of postponing, despite her whips informing her that opposition to her deal is solid. The pound rose regardless, a reflection of the improved options available in the case of a defeat. This is no more a Theresa May Brexit or a no deal Brexit. There are some shades of grey in-between.

US Jobs Report In Focus

The dollar was broadly weaker in the previous session hit by several pieces of bad news. Firstly, the dollar responded badly to news that the CFO of China’s largest technology firm Huawei had been arrested in Canada for extradition to the US. The moves comes just as trade tension were meant to be improving between the US and China. It threatens to shatter a very fragile trade truce between the two power.

US data also failed to impress. Jobless claims increased, whilst the rise in employment was less than what analysts had been forecasting. Factory orders and durable goods also fell. Thursday’s weak data points to disappointing US jobs report data today. A weak reading could send the dollar lower.

How does the non-farm payroll (NFP) affect the US dollar?
It works like this, when there is low unemployment and high job creation, the demand for workers increases. As demand for workers goes up, wages for those workers also go up. Which means the workers are now taking home more money to spend on cars, houses or in the shops. As a result, demand for goods and services also increase, pushing the prices of the good and services higher. That’s also known as inflation. When inflation moves higher, central banks are more likely to raise interest rates, which then pushes up the currency’s worth.

How does the non-farm payroll (NFP) affect the US dollar?

It works like this, when there is low unemployment and high job creation, the demand for workers increases. As demand for workers goes up, wages for those workers also go up. Which means the workers are now taking home more money to spend on cars, houses or in the shops. As a result, demand for goods and services also increase, pushing the prices of the good and services higher. That’s also known as inflation. When inflation moves higher, central banks are more likely to raise interest rates, which then pushes up the currency’s worth.

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