The Pound Sterling vs US Dollar exchange rate was seen trading around the 1.2600 handle following the release of the Nonfarm Payrolls (NFP) data on Friday. The report showed a surprise increase in new jobs in the US, leading to the US Dollar gaining on higher inflation expectations and the GBP/USD declining after peaking for the year.
According to the report, 253K new hires were made in the US in April, which is a sharp rise from the 179K expected by economists. The news initially led to the US Dollar strengthening against most major currencies, as the strong job growth pointed towards a robust economic recovery.
The Pound Sterling also benefited from the report, as the monetary policy divergence between the UK and the US became more apparent. The elevated inflation in the UK suggests more aggressive rate hikes, which could be positive for the currency.
However, despite the initial movement in the GBP/USD exchange rate, analysts suggest that there are caveats in the NFP data that could limit the enthusiasm of investors. Some of the details in the report reflect a watering down of the headline reaction, which could temper the market’s response to the news.
Moreover, the focus is now on next week’s inflation report, which could provide more clarity on the future monetary policy direction of both the US Federal Reserve and the Bank of England. The market is also waiting for more economic data releases, such as retail sales and consumer price indices, to determine the next moves in the currency markets.
In conclusion, the Pound Sterling vs US Dollar exchange rate is likely to remain volatile in the near term, as investors digest the NFP data and wait for more economic data releases. The monetary policy divergence between the UK and the US could be a significant driver of the currency markets, as the two countries take different approaches to inflation and interest rate hikes.
