The U.S. Dollar dipped in immediate response to weaker-than-expected US jobs data.
UK local election results had little impact, but GBP/USD was unable to sustain gains even with the tailwind of a fresh record high for the FTSE 100 index. The Pound also registered wider losses ahead of next week’s Bank of England policy decision.
The Pound to Dollar (GBP/USD) exchange rate hit 3-week highs at 1.2635 before a retreat to 1.2565 while the Pound to Euro (GBP/EUR) exchange rate retreated to 1-week lows below 1.1670.
Scotiabank notes positive GBP/USD signs; net gains on the week (so far) add to the GBP-positive momentum that was sparked by last week’s bullish weekly outside range signal. Risks remain tilted towards a push to 1.27+, at least.”
The US employment report recorded an increase in non-farm payrolls of 175,000 for April compared with consensus forecasts of around 240,000 while there was a small upward revision for the March data to 315,000 from the 303,000 reported previously.
According to the household survey, the unemployment rate edged higher to 3.9% from 3.8% with only a marginal increase in employment.
Average hourly earnings increased 0.2% on the month, slightly below expectations of 0.3%, with a slowdown in year-on-year growth to 3.9% from 4.1%.
The data overall suggested a cooling in the labour market with moderation in wage pressures.
The US ISM services-sector report was also weaker than expected with a dip into contraction territory.
Following the data, there was a reassessment of the chances of lower interest rates with markets pricing in over a 45% chance of a July rate cut.
Markets also moved to price in two rate cuts for the year from one previously.
Neil Birrell, Chief Investment Officer at Premier Miton Investors commented; “What will the Fed make of this? At last, there is evidence of some weakness in the US jobs market."
He added; "Rate cuts will move back up the agenda as a result and there is little doubt that markets will take this as good news. While we shouldn’t make too much of single data prints, this could be the start of a positive trend for the Fed."
There was still an important element of caution.
Thomas Simons, U.S. economist at Jefferies, commented; "We caution against putting too much stock in this particular data point as the month-to-month variance is enormous, but still, this is an encouraging move in the right direction."
Treasuries also rallied further with the 10-year yield dipping below the 4.50% level for the first time in three weeks.
Scotiabank commented; “While it seems that the Fed is some ways from easing interest rates (and even further from hiking again), weaker than expected data this morning is still likely to give the softer USD tone some additional impetus.”
The UK Conservative Party lost a substantial number of councillors in local elections.
According to Scotiabank; “Losses are bound to stoke talk of another replacement PM—and Labour pressure for a general election.”
Jane Foley, head of forex strategy at Rabobank commented; "The ruling Tory party has not fared well, but this has not come as a surprise. While cable is pushing higher today, this is the result of a broad-based fall in the U.S. dollar."
The UK PMI services-sector index was revised to 55.0 from the flash reading of 54.9, the strongest reading since May 2023.
Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the survey; commented; "Business activity expectations for the year ahead were upbeat overall in April, therefore adding to signs that the recovery in service sector performance has further to run.”
Weaker pricing data sparked some expectations of dovish Bank of England guidance next week.