Sat, Oct 16, 2021 @ 10:59 GMT
HomeContributorsFundamental AnalysisPound Edges Higher as NFP Sinks

Pound Edges Higher as NFP Sinks

The British pound has punched above the 1.38 level in the Thursday session. GBP/USD is currently trading at 1.3852, up 0.14% on the day.

UK business activity de-accelerates

The UK services sector remains in expansion territory, but the August Services PMI reading of 55.5 was nonetheless a disappointment. The release was down sharply from the July read of 59.6 and was the lowest reading since March, when the current recovery in business activity started. The report attributed the slowdown to staff shortages and disruptions in supply chains. Despite these pressing problems, service providers remain highly optimistic about the outlook for growth in services for the next 12 months.

US Nonfarm Payroll crashes

Analysts had predicted a rosy NFP for August, with a consensus of around 750 thousand new jobs. In the end, the release was a massive disappointment, coming in at just 275 thousand. The extremely soft reading could trigger a further general US dollar sell-off, either during the remainder of today’s session or early next week. The US dollar will be under pressure since any expectations of a taper in October have dissipated, as the Federal Reserve will likely delay plans for a taper until policy makers see stronger job data Unless Fed members are unexpectedly hawkish in the wake of the huge underperformance by nonfarm payrolls, the US dollar could be in for a very bumpy ride next week.

Overshadowed by the NFP was a strong wage growth figure – the gain of 0.6% was better than expected and the strongest in four months. The labor shortage in the US is pushing wages higher, and if the US economy continues to improve, this trend could well continue in the fourth quarter.

GBP/USD Technical Analysis

  • GBP/USD is putting pressure on resistance at 1.3885. Above, there is resistance at 1.3988, just below the symbolic line of 1.40
  • On the downside, 1.3821 is the first line of support. This is followed by support at 1.3654
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