US Yields and Nonfarm Payrolls Trigger Sterling Rebound
The pound sterling strengthened against the US dollar in trading on Thursday (July 2nd) after the US jobs report came out much weaker than expected. This data eased expectations that the Federal Reserve would raise interest rates again in the near future.
GBP/USD moved around 1.3359, supported by a weaker US dollar following the release of Nonfarm Payrolls. The United States economy added only 57,000 jobs in June, well below market expectations of around 110,000. May's data was also revised down to 129,000, while April's was cut to 148,000.
Although the unemployment rate fell from 4.3% to 4.2%, the decline did not fully indicate a strengthening labor market. Analysts believe the decline in the unemployment rate was largely due to a weakening labor force participation rate, which fell to 61.5%, its lowest level since March 2021.
The weaker jobs data led the market to cut hawkish bets on the Fed. Money markets now expect only around 23 basis points of tightening by the end of the year. This is putting pressure on the US dollar as the likelihood of more aggressive interest rate hikes begins to diminish.
US Treasury yields also moved lower. The 10-year bond yield fell around 2 basis points to 4.461%, further weighing on the greenback. The US dollar index (DXY) fell 0.65% to around 100.75, giving other major currencies, including the pound sterling, room to strengthen.
Other data from the United States showed that factory orders fell 1.3% in May, primarily due to a decline in commercial aircraft orders. While this figure was better than the 1.8% decline expected, the weakening from the 5.3% surge in April suggests industrial activity is losing some momentum.
From the Fed's perspective, Federal Reserve Bank of San Francisco President Mary Daly said there were still positive signs from the US economy. However, she acknowledged that previous price increases were influenced by tariffs and the surge in oil prices. Daly assessed that current policy remains somewhat restrictive, but still leaves room for the Fed to combat inflation if price pressures increase again.
In the UK, the economic calendar was relatively quiet. Investors focused on the political dynamics following Keir Starmer's resignation and the increasing likelihood of Andy Burnham becoming his successor. The market remained cautious about Burnham's policy direction, particularly regarding fiscal policy and the UK's future economic strategy.
The pound also received support from falling oil prices. Lower energy prices could ease inflationary pressures in the UK and give the Bank of England room to delay new policy steps. However, the market still expects the possibility of a BoE interest rate hike if inflation rises again.
Furthermore, rumors of Japanese authorities intervening in the foreign exchange market also weighed on the US dollar. USD/JPY fell from around 162.50 to 160.95, increasing pressure on the greenback broadly and supporting other major currencies, including the pound.
Overall, GBP/USD was boosted by a combination of weak US NFP data, falling Treasury yields, and a weakening US dollar. However, uncertainty surrounding UK politics and the Bank of England's policy direction could still limit the pound's strength in the short term.
Looking ahead, market focus will be on further comments from Fed officials, US inflation data, and political developments in the UK. If US data continues to weaken and the Fed holds interest rates for longer, the pound has the potential to maintain its strength. However, if the dollar recovers or the market becomes concerned about the UK's fiscal policy, GBP/USD could return to volatility. (arl)
Source: Newsmaker.id
