GBP v USD: Exchange rate weakens as markets brace for strong US payrolls data
GETTY Weak January construction data from the UK is also contributing to GBP/USD losses
The latest UK construction PMI fell 2 points further than forecast to hit 50.2; only fractionally above contraction territory. IHS Markit reported signals that the sector could contract in February, with Economist Sam Teague commenting: “A contraction in house building added to lacklustre commercial building and civil engineering markets, and reduced inflows of new work suggest overall activity could slip into decline in February.” The index was dragged to a four-month low by decline in residential building activity, coupled with virtually stagnant commercial and civil demand Mr Teague said: “Survey respondents reported increased hesitance among clients to invest in new projects amid heightened concerns over the UK economic outlook.”
The pound has been further pressured lower against the US dollar today by forecasts of a solid 180,000 increase in the US non-farm payrolls report for January. The NFP is one of the key releases used by the Federal Reserve to assess the strength of the US economy and set monetary policy, so a solid uptick here would further boost the odds not only of an interest rate hike in March but of a continuation of the monetary tightening cycle later in the year. Markets were convinced earlier this week that the Federal Reserve may even be targeting four interest rate hikes during 2018, after hints in the latest monetary policy communication following Wednesday’s rate-setting meeting. Expectations for a March hike were therefore already high, with the CME Fedwatch tool putting market expectations of tightening at 83.1 per cent.