British Pound to US Dollar Exchange Rate Losses Limited despite Impressive US Non-Farm Payroll Report

Even though the Federal Reserve has taken a more hawkish than expected tone on the US economic outlook and some key US data has beaten expectations, the British Pound to US Dollar exchange rate’s losses on Friday were limited. Weakness in market risk-sentiment kept investors hesitant to buy the US Dollar too much.

After opening this week at the level of 1.2912, GBP/USD advanced on Brexit speculation and saw solid gains. In the middle of the week, GBP/USD even touched on a half-month-high of 1.3097 before sliding towards the end of the week. At the time of writing today, GBP/USD was trending close to the level of 1.3026, still on track to have sustained notable gains despite the late-week slide.

This week’s Pound to US Dollar exchange rate movement has been driven largely by the Pound, inspired by speculation of how the Brexit process could unfold.

Hopes that the UK government’s cross-party Brexit negotiations with the opposition Labour Party could lead to a softer Brexit being agreed and passed through Parliament made investors hopeful, and the Pound surged in response near the beginning of the week.

These hopes for a softer cross-party Brexit compromise were the primary cause of the Pound’s strength over the past week. However, this also meant that when hopes lightened towards the end of the week, the Pound was sold.

Investors sold the Pound from its best levels in profit taking, as soft Brexit speculation softened and markets became more anxious about long-term Brexit uncertainties and the possibility of talks falling through again.

The latest UK data didn’t offer the Pound much fresh support either. Britain’s April services PMI report fell short of expectations, indicating that Britain’s key services sector had been negatively impacted by Brexit uncertainty.

The US Dollar, on the other hand, spent most of the week tumbling due to signs that the US economy was being negatively impacted by slowing global growth.

The US Dollar hit lows ahead of the Federal Reserve’s May policy decision on Wednesday evening, when bank officials indicated they had no intentions to hike or cut US interest rates again within the foreseeable future.

The tone was seen as more hawkish than investors expected, and it was supported by late-week US data beating expectations.

Thursday’s US Non-Farm Productivity and factory orders stats came in higher than expected, and Friday’s US Non-Farm Payroll report was particularly impressive.

The data indicated that far more new jobs had been made than expected, and the unemployment rate unexpectedly fell to a 50 year low of 3.6%.

The US Dollar’s gains were limited though, as the participation rate fell more than expected, and investors were a little more interested in trade-correlated currencies over the safe haven US Dollar before markets closed for the week.

With UK markets closed on Monday to observe a bank holiday, and the economic calendar relatively quiet until Thursday, the Pound to US Dollar exchange rate could be driven mostly by Brexit speculation again next week.

As the past week’s Brexit hopes are fading and this is leading to Sterling losses, the Pound could tumble further if there are no signs of optimistic developments in cross-party Brexit negotiations.

On the other hand, if talks start to show signs of leading to solid developments, the Pound to US Dollar would be much more likely to return to recent highs.

US Dollar investors will be anticipating US trade balance data and wholesale inventories due on Thursday, as well as the key US inflation rate report from April due on Friday.