Best Pound Dollar Exchange Rate of 2014 Falls Away as GBP/USD Hit by Strong US NFP Data

The pound has been pushed to twenty-two month highs against the euro and six-year highs against the US dollar as better than expected manufacturing and construction data cements the belief that UK interest rates will increase sooner rather than later.

"These new levels could provide a good opportunity for businesses to lock in an excellent budget price for the year ahead. Meanwhile sterling buyers may wish to consider the future impact this will have on their profit margins," says Carl Hasty at Smart Currency Business.

Greg Anderson at BMO Capital warns that the GBP may be over-extended at this time and could be due a bout of corrective declines:

"The move in GBPUSD represents a new cycle high but the fact that shockingly good data can’t take GBP higher may be a sign that the market can’t get much longer."

If you are looking to lock-in current exchange rate levels while taking advantage of potential future gains consider utilising a forward contract or execution order, please learn more here. 

US data pushes GBP off recent highs

The US economy added 288K jobs in the previous month, well ahead of analyst expectations for 212K, however forex traders have bought the dollar on the observation that June's surging rate of job creation was trumped by April's revised figure of more than 300,000.

The result was a sharply higher US dollar as markets start to bet that the US Fed will be forced to tighten monetary policy sooner than it would have liked. However, whether Chairperson Yellen will budge remains to be seen and we would suggest the dollar rally will be capped until the Fed gives an indication that it can be swayed.

UK's pound supported by economic data

Activity in the UK's manufacturing sector meanwhile grew at the fastest pace for seven months in June while the construction sector also grows at speed..

The latest Markit/CIPS purchasing managers' index (PMI) for the sector was 57.5, up from 57.0 in May, analysts had been expecting a reading of 56.8.

The result saw traders fall back into the GBP complex sending rates higher.

Can even better levels be achieved?

Can we expect better GBP to USD exchange rates from here?

Momentum studies confirm that the easiest path for the pound dollar rate to follow from here is higher.

According to Luc Luyet at Swissquote Research further gains can be expected:

"GBP/USD has broken the major resistance at 1.7043. A short-term bullish bias is favoured as long as the hourly support at 1.7007 (27/06/2014 low) holds. Another support lies at 1.6953 (25/06/2014 low).

"In the longer term, the break of the major resistance at 1.7043 (05/08/2009 high) calls for further strength. Resistances can be found at 1.7332 (see the 50% retracement of the 2008 decline) and 1.7447 (11/09/2008 low). A support lies at 1.6923 (18/06/2014 low)."

According to Boris Schlossberg, the Bank of England will have to act on interest rates soon or risk losing credibility:

"With UK data continuing to exceed expectations the pressure builds on BoE to hike rates this year rather than in 2015.

"The UK monetary authorities have consistently downplayed rate hike expectations on concerns that a strengthening pound would hurt the country's nascent export rebound.

"But given today's strong manufacturing results the impact of higher exchange rates appears to be minimal and the BoE is now in danger of losing its credibility if it does not act soon , especially if the data continues to surprise to the upside."

European data keeps EUR supported

Meanwhile in Europe the news was good with German unemployment rising to 9K from -9K eyed.

This was the second month in row that German joblessness increased, although the unemployment rate remained the same at 6.7%.

"Taken together with yesterday's weak German Retail sales, the news indicates that EZ largest and most important economy is starting to slow down, although the slack is picked up somewhat by the periphery especially Spain, where the rebound continues to gather pace," says Schlossberg.

The EUR/USD did however see little reaction to the news dipping to 1.3680 in the aftermath of the release but remained well within striking distance of the 1.3700 barrier as investors continued to shun the greenback.

European markets continue to hold onto gains heading into the afternoon whilst US futures are indicating a slightly higher open. Positivity has filtered into the market after UK manufacturing data beat expectations. The strong data came in at a reading of 57.5, up from 57 a month earlier. The pound strengthened against the dollar following the data and 10-year gilts jumped.

Upbeat manufacturing data from China has also contributed to gains, lifting the heavyweight mining sector. China’s manufacturing expanded in June at the fastest pace this year, producing a reading of 51.

German unemployment unexpectedly rose for a second month amid signs of a slowdown in Europe’s largest economy. Analysts were forecasting a decrease of 9,000 unemployed people yet the data showed an additional 9,000 people out of work. The euro remains unchanged against the dollar at 1.3684.