Dollar Jumps Against the Pound + Euro as US Wage Growth Picks up, Non-Farm Payroll Data Flop Ignored

There is no stopping the Dollar it would seem; the US currency continues to advance against the Euro, Pound Sterling and other global majors despite a much-anticipated data release coming in below expectations.

The Pound to Dollar exchange rate has slid down to 1.2338 from the day's best at 1.2432 while the Euro to Dollar rate is down to 1.0552 from a daily best at 1.0623.

The Dollar index - a basket of USD-based pairs - is up at 101.92, a 0.36% advance on the day's open.

All eyes were fixed on the headline non-farm payroll figure contained in January 6's Employment Situation report for further foreign exchange guidance.

The release came in at 156K, below the 178K forecast by analysts.

But it turns out it was in fact the wage growth component contained in the release that markets were actually watching - Average Weekly Hours for December rose 0.4%, ahead of the 0.3% forecast by analysts.

This tells us that inflationary pressures are likely to build in 2017 which could well force the US Federal Reserve to raise rates more than the three times expected by markets.

And higher fed rates = a stronger Dollar.

Analyst Viraj Patel at ING in London tells Pound Sterling Live the wage growth data is what matters for USD as he believes movement here will be more important in driving the Dollar: 

"A strong rebound in wage growth could see a 360-degree reversal in US yields and the dollar following this week's sell-off." 

Patel argues rising inflationary pressures remains the biggest short-term concern for the Fed (as well as markets) and a 3-handle on annual wage growth in 1H17 will vindicate the central bank’s latest hawkish shift.

"With positioning a bit more cleaner, the bar for $ upside has been lowered and it may only take little upside in today’s jobs data to reignite the Trump reflation trade," says Patel.

ING are forecasting the GBP/USD exchange rate to fall down to 1.20 over coming weeks on the back of a strengthening Dollar and a pick-up in Brexit-related newsflow.

How the Release has Impacted your Pocket:
Those with GBP-USD payments are now seeing a range of international payment conversions ranging from 1.1914 through to 1.2235.
Those with EUR-USD payments are now seeing a range of international payment conversions ranging from 1.0183 through to 1.0457 depending on who their provider is.

“Although there is still plenty of uncertainty surrounding the President-elect’s Trumponomics, the markets have reacted positively to his economic stimulus programme," says Dennis de Jong, Managing Director at UFX.com, in the wake of the release. “The dollar looks likely to continue on its positive trajectory and there’s a very real chance that it will hit parity with the euro at some point this year.”

Dollar Recovers from US ADP Setback

The Dollar has recovered the majority of its losses suffered in the wake of Thursday's disappointing ADP payrolls data from the US.

The headline figure read at 153k which represents the second lowest ADP number in 34 months.

The data served to warn traders that those three interest rate they expect from the US Federal Reserve in 2017 are not a done deal.

The price of US treasury bonds rose as a result of the news, this in turn pushed bond yields on those treasuries lower which had the knock-on effect of dragging USD lower.

USD Weakness to be Temporary

Meanwhile analyst George Davis at RBC Capital Markets tells Pound Sterling Live that he sees any Dollar weakness as being temporary and offering an opportunity for Dollar bulls to enter the market ahead of further gains.

"We see the current correction as an opportunity to scale into long USD and short bond positions at more advantageous prices," says Davis.

RBC Capital say the current US Dollar correction is not unexpected and traders should not be surprised if it actually extends a little further.

"We believe that the correction has further to run as crowded positions are pared back," says George.

But, should GBP/USD rise further there should be some good selling opportunities:

RBC Capital are targetting 1.21 in 3 months.