Traders are undecided whether to throw the USD a lifeline following the news that the United States added a stunning 227,000 jobs to its economy during the first month of 2017.
While the number on headline is stunning and continues to outline the underlying strength of the US economy there are some initial concerns that wage growth underwhelmed, which has added fuel to the fire that the Federal Reserve will be keeping US interest rates unchanged over the next couple of months. Although the Federal Reserve is likely to continue highlighting their public bias for another three interest rate rises this year, this data is not convincing enough to suggest the central bank will be confident enough to pull the trigger before May at the earliest. The air of uncertainty over what clarity the Trump administration can provide when it comes to their fiscal stimulus plans is contributing towards the consensus that the Fed will wait and see how things develop.
If it wasn’t for the underwhelming wage growth figures I do believe that the USD would be strengthening across the financial markets following this release, but the wage numbers do suggest that March is definitely off the table when it comes to a possible interest rate rise from the Federal Reserve. When you combine this with the uncertainty circulating over whether the Trump administration is going to implement their protectionist policies before pushing ahead with their stimulus promises which the financial markets purchased heavily into, you can understand why traders are behaving undecidedly to the NFP release.
Despite traders being unsure of how to react to the USD, it looks like the slump in the Sterling is going to continue for the second day with the Pound/Dollar concluding the week suffering two days of successive losses. The Services PMI that was released from the United Kingdom earlier during trading today suggested that economic momentum is slowing down, complimenting to the selling pressure seen in the Pound since yesterday. While the Bank of England (BoE) upgraded its growth forecast for 2017, the lack of conviction from Governor Carney over which direction UK interest rates could be heading next has reminded traders that the UK is still set to face ongoing uncertainty over the Brexit.
Basically the probability looks high that UK inflation will surpass the 2% threshold that could encourage the BoE to consider higher interest rates, but the prolonged uncertainty over what the impact to the UK economy will be once Article 50 is finally invoked is going to limit the scope of options for Carney to move either direction when it comes to interest rates.