Contracts for Difference: Weak NFP Likely to Boost GBP/USD

Posted on May 04, 2012. Edited by Frankie Lawson

A study completed by the National Institute of Economic and Social Research (NIESR) is predicting the UK unemployment rate will rise from the current 8.3 percent to nearly 9 percent by the end of 2012.

The study blames low growth in the coming two years as the UK steers itself out of this technical recession.

NIESR recognized that later revisions may alter this, but said “small quarter-to-quarter movements of this sort are largely irrelevant to the broader picture of an economy that remains very weak”.

The big ticket data release this afternoon is the US non-farm payrolls. It’s been a mixed bag data wise leading up to today’s announcement so there is a large degree of uncertainty over the actual number.

Consensus estimates are for 175k jobs created in April, initial jobless claims yesterday came in better than expected which point towards a positive number but at this stage it is difficult to call.

The dollar has regained significant ground against Sterling in the last week and the risks remain to the downside, however, if the number disappoints, GBP/USD could be trading above 1.62 quite quickly.

EUR/GBP has broken its correlation with movements in EUR/USD for the time being, with self-governing Sterling strength evident.

This has been confirmed by the shift in interest rate differentials between the UK and Eurozone, a move which has gone in favour of GBP strength.

The view now points to some further downside potential in this currency pair, with a test of technical support around 0.8067 on the cards.

Enjoy the bank holiday!


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