GBP/USD Exchange Rate Falls from 6 Year High as US NFP Data Propells USD Higher

The sterling is however trading in firm fashion elsewhere thanks to a decent run of economic statistic releases this July.

The pound to dollar rate is seen trading unchanged on Friday morning having fallen to 1.7152 the day prior, this is still the highest rate in 6 years.

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. 

Pound dollar rate falls

The USD is in charge on global markets on news that 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.

Marcus Bullus, trading director of MB Capital, comments:

"Someone attached the jump leads to the US jobs market in June.

"After Wednesday's solid ADP number, we were quietly optimistic that today might be the big one. It was.

"The markets will go into the long weekend on a buzz, while strong upward revisions in April and May will add to the feel-good factor."

Is the GBP rally sustainable?

Despite the strong gains, some FX commentators are now questioning whether the GBP/USD is due a correction lower.

Sterling 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:

"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." Also expressing concern on an over-extended GPB/USD are Lloyds Bank Research:

"GBP valuations do look a little stretched, and it certainly looks as there is plenty of speculative long GBP positioning being held (see chart 1 on page 2). From a medium term perspective, it seems unlikely that the UK will continue to outperform the growth outcomes in the US and Eurozone indefinitely, so these levels may well prove a good longer term hedging opportunity."

Why is the US dollar stronger today?

ADP’s June National Employment Report shows private payrolls adding 281,000 jobs last month, well above economists’ expectations.

Commenting on the data is Omer Esiner at Commonwealth Foreign Exchange:

"The across-the board employment increases were very encouraging, especially in the wake of last week’s dismal revision to Q1 GDP that showed America’s economy contracted by nearly three percent in the first three months of the year.

"The data was consistent with the prevailing view that the economy shifted into a much higher gear in Q2, and if maintained, could eventually force the Fed to adopt a slightly more neutral policy bias. Investors will look to a speech by Fed Chair Janet Yellen later this morning for any new clues on the outlook for U.S. borrowing costs."

The USD exchange rate complex has, until today, been struggling somewhat.

"The greenback was stung by a shockingly disappointing reading of Q1 GDP last Wednesday, which showed the world’s largest economy contracted by nearly three percent in Q1. While old news, the backward-looking GDP did highlight the very anemic start for the economy in 2014 and underscored the view that the Fed is in no rush to begin raising rates anytime soon," says Esiner.

Euro falls from recent highs

The euro has been trading on the fron-foot in recent days but has since fallen from a six-week high against the dollar after this morning’s solid ADP report showed much stronger than expected jobs growth last month.

"Tomorrow, the ECB meets and is not expected to follow up last month’s groundbreaking lending rate cuts with any additional monetary policy action. However, against the backdrop of dangerously low inflation and very anemic growth, the ECB could open the door further to additional monetary easing, possibly in the form of Fed-styled asset purchases, in the months ahead," warns Esiner.

Such a scenario or any hints that policymakers are becoming increasingly unhappy with the euro’s strength, would likely see the euro slip back toward recent lows against the dollar.