– US unemployment falls sharply
– Dollar widely offered
– GBP / USD outperforms EUR / USD
– GBP / EUR tests new best 4-month response rate
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- Market rate at publication: GBP / EUR: 1.1797 | GBP / USD: 1.3900
- Bank transfer rate: 1.1567 | 1.3617
- Specialized transfer rates: 1.1714 | 1.3810
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The US dollar has found new auction interest following a strong US employment report for July, although this strength is more evident against the euro, suggesting a pound exchange rate profile -dollar more robust in the future.
The non-farm payroll in the United States stood at 943K for July, which is better than the 870K expected by the market and an improvement from the 938K of the previous month.
The US unemployment rate fell to 5.4% in July, beating analysts’ expectations for a drop to 5.7% from 5.9% in June.
The dollar was bought off as a result of the data, as investors interpreted it as further confirmation that the economy is moving in a manner consistent with the withdrawal of monetary stimulus in the Federal Reserve (Fed).
“The previous market supply in USD was confirmed by this net gain in jobs and this upward revision through June,” said Simon Harvey, senior currency analyst at Monex Europe.
Above: The USD was offered against all of its rivals on August 06
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The Fed has long said it will only begin withdrawing monetary support once it feels the US economy has recovered sufficiently.
Market developments – including the rally in the dollar – suggest that the Fed will be justified in announcing a plan to curtail asset purchases as part of its quantitative easing program (tap) at future meetings.
“Great drop in the unemployment rate in the US. Suggests an improvement in the labor market and accumulated job gains from previous failures. Labor market participation on the rise. Wages are also beating. Nothing in this report on employment that does not suggest to the Fed that labor market progress is underway, âsays Viraj Patel, strategist at Vanda Research.
Average profits in the United States rose 0.4% month-on-month through July, which is faster than the 0.3% expected by the market.
Annual wage growth stood at 4.0% in July, higher than the 3.8% expected by the market.
In the wake of the data, the pound-dollar rate fell 0.20% to 1.3897, while the euro-dollar exchange rate supported a more notable rate of 0.40%.
This divergence in the performance of the dollar on the two exchange rates left the pound-euro cross supply of 0.20% at 1.18, which represents a new 4-month high, confirming the centrality of the dollar in the market. foreign exchange in the broad sense.
The fact that the pound-dollar exchange rate is more resistant to buying the dollar than the euro-dollar suggests a preference for the pound over the euro in a market heavily focused on central bank policy.
While the Fed may be heading for a future of higher interest rates, so too will the bank of england.
The Bank revealed in its August 5 policy report that it is likely to hike interest rates in 2022, two years ahead of current expectations of a similar move by the European Central Bank.
But before the US Federal Reserve offers more concrete guidance on raising interest rates, it must scale back its quantitative easing program, and a series of strong jobs reports “make the prospect of a reduction closer, âsays Ima Sammani, currency analyst at Monex Europe.
The data provides “all the reasons dollar traders are taking a bullish stance today. Dollar strength has also been supported in the Treasury market, with 10-year yields recovering to 1.3% after passing much of the week below the 1.2% grip, âSammani adds.
Looking at the details of the employment report, the employment recovery in July was again mainly driven by the leisure and hospitality sector.
Employment in this sector increased by 380,000 in July.
The number of jobs also increased for the trade and transport sector (47k), business services (60k) and education and health (87k).
For other private industries, there have been less significant changes.
âImproving labor market means the Fed is moving closer to signal reduction. We believe another strong monthly report would be enough to justify ‘further substantial progress’ towards the maximum employment target,â says Knut A. Magnussen, Senior Economist at DNB Markets.