This is the GBP/USD Rate’s Chance to Recover

The pound to dollar exchange rate (GBP-USD) has been given room to advance following some surprisingly poor US economic data.

The question going forward is whether we are witnessing the start of a more protracted downturn in the dollar complex or whether this is a mere blip in the longer-term advance.

“The USD has been under pressure on the back of rising uncertainty ahead of Friday’s payrolls report. This is mainly due to yesterday’s weaker than expected ADP job and ISM manufacturing PMI report that indicate weaker labour market conditions,” say Crédit Agricole in a briefing to clients.

At the time of writing the pound to dollar exchange rate (GBP-USD) is seen trading at 1.4850.

The below graph shows that we are off recent lows but the currency pair is by no means in a run-away advance:

The break of the zone just below 1.4880 would be the first solid indicator that we could see further relief for the pound sterling.

However, sceptics to the extend of the dollar’s potential weakness abound.

“We remain of the view that incoming data will be sufficient enough in keeping investors’ Fed rate expectations supported. Accordingly we believe that USD upside from current levels will prove limited,” say Credit Agricole.

Be aware that all FX quotes here are from the wholesale markets - your bank will affix a spread to the rate to derive profit. However, an independent FX provider will undercut your bank's offer, this can deliver up to 5% more currency in some instances. Find out more here.

Dollar Bulls See a Buying Opportunity

Also seeing this as a minor setback for the USD is Kathy Lien at BK Asset Management who says she will be buying the weakness in the USD Index:

“As long term dollar bulls we have bought the dollar on this latest dip and will be looking to buy it again if it falls further.”

Lien believes sterling may have a tough time rallying and remain trapped between a 1.46 and 1.50 trading range.

US Data Disappoints and Weighs Near-Term

Sterling was afforded the chance to side-step some woeful productivity figures on Wednesday and rally against the USD after the ADP report on the US labour market surprised to the downside, as fewer jobs were added in March than predicted.

ADP non-farm employment change increased by 189,000 in March, considerably below expectations of a 225,000 rise.

“The ADP employment change is considered as one of the leading indicators of labour market strength in the world's biggest economy. Even though the data appeared to be worse than expected, the jobless rate is set to remain unchanged at 5.5%, the lowest level since 2008,” point out Dukascopy Bank in a note to clients.

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Another piece of soft data came from the US manufacturing sector, where activity expanded at a slower pace in March, the Institute for Supply Management reported.

The ISM manufacturing index dropped to 51.5 last month, compared with 52.9 in February, while expectations were for the report to show the gauge to fall to 52.5.

This was the fifth consecutive decline in the index, yet the reading remained above the 50-mark threshold, indicating the manufacturing sector continued to expand instead of shrinking.

The employment sub-index dropped 1.4 points to 50, while the ISM's new-orders gauge slipped to 51.8 from 52.5.