Ms Yellen Can't Dodge This Jobs Report

The only game in town following the October non-Farm Payrolls report is to buy dollars.

We wrote here that trying to call the bottom to the GBPUSD's decline is pretty darn hard when the market is in freefall.

The delayed dollar uptrend is back, and we won't bother trying to fight it.

Central bank divergence is clearly in the driving seat - the difference between the US & UK to the Eurozone was clear to see with the first two looking to raise rates while the ECB considers a December rate cut.

But now a new gulf has emerged - that between the US and UK. The Bank of England has been tracking the US Federal Reserve in terms of guidance for some time now, and this has been reflected in a rather static GBP to USD conversion.

That has changed now - where the Bank of England continues to dodge raising interest rates the US Fed is against the wall.

If you are a central banker in the US or the UK these days your job is essentially quite a simple one - you are tasked with finding ways of avoiding raising interest rates. At all costs.

As a Bank of England decision maker you are permitted to shift the goal posts at will; if the unemployment rate is your trigger to higher rates but the unemployment rate promptly crashes through your target you can shift focus to economic 'slack.' Choose inflation if the economy then tightens too quickly, just don't raise rates.

Fed Chair Janet Yellen and her team have played a similar game - they have recently shifted focus from the domestic agenda to the international agenda citing a slowdown in Chinese growth as a reason to keep rates low.

"I'd like to see how the Fed is going to back away from a rate rise after that jobs report," says Michael Hewson at CMC Markets following the most recent job numbers. This view will be shared by many who trade currencies and fixed income for a living.

The point is this - the game is up for Yellen & Co. as interest rates must rise in the United States. The markets know that the recent employment numbers are simply too strong to ignore and the Fed risks a complete break-down in credibility if it manufactures another excuse not to move.

That is why the dollar is shooting higher and may prove unstopable for some time yet.

With regards to the pound, the Bank of England will happy to see the Fed raising rates first as it takes the heat off them having to raise rates while devaluing sterling; all of a sudden an agressive push on the GBP appears to be high on the agenda at Threadneedle Street.

Nevertheless, pricing a rate rise in 2017 seems far too dovish and with a Fed moving on rates we reckon the Bank will start shifting focus quicker than markets are pricing.

Look to buy any deeper dips in sterling, particularly against the commodity dollars and the euro.

Play the upside in GBP/USD at your peril.