GBPUSD,EURUSD Affected By U.S. Labour Market

Bank Of England
The GBP/USD exchange rate (GBP/USD) is 1.6142. The Euro Dollar exchange rate (EUR/USD) is 1.4204. US Labour Market figures released during the last session of last week continue to affect levels in the currency markets as this weeks session begins.

Fridays Non-Farm Payroll data in the States came out significantly better than analysts had anticipated, showing that 216,000 new jobs had been created last month in the non-agricultural sector. This healthy level of new job creation has helped take the total number percentage of the US workforce who are currently unemployed to 8.8%, as of last month. This is down from 8.9% in February and the lowest in two years.

With US Retail Sales showing their eighth monthly rise in a row in February and the latest available data showing that US Consumer Spending is growing at its fastest pace in four months, sentiment regarding the real economy is showing signs of improvement.

This has led to increasingly hawkish commentary by Federal Reserve speakers in the last two weeks. Several commentators have called for a cessation of the current US Quantitative Easing programme when the current tranche is completed in June. Some analysts have suggested that US administrators may even consider a surprise interest rate rise in the next few months.

Further direction regarding US Monetary Policy will be given today when Fed Chairman Ben Bernanke speaks; Dennis Lockhart, President of the Federal Reserve Bank of Atlanta also speaks today.

The only piece of UK data of significance due for release today has already emerged, with Marchs Construction PMI figure showing that activity in the UK construction sector is at a higher level than had been anticipated. This has provided limited support in early trading for the Pound.

However, the GBP/USD rate is likely to be determined in the medium term by expectations on US economic policy. At the moment, the Dollar is weakening due to an increased global appetite for risk, which has been caused by Fridays encouraging data. However, if this improving data stream causes further hawkish comments from Fed members, then expectations regarding the future direction of US monetary policy may firm up, causing renewed Dollar strength.


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