Increased volatility in the currency markets in the last 24 hours and even more to come on the back of the UK General election and in light of the US Non-Farm Payrolls report later today. The US Dollar was under pressure versus the Pound after the apparent win of the Conservatives party in the UK while it gained some ground against the Euro as the Greek debt talks offered no encouraging news.
The main event of the day yesterday was the General election in the UK and as it seems the Conservative party has gained the majority of the Parliament which will allow it to continue while its current policies. This was positive news for the British Pound that climbed significantly after the exit polls last night allowing the UK currency to reach the 1.5500 barrier. Whether the Cable will sustain its gains has to do with the US jobs report scheduled for today.
On the topic of the upcoming labour market report, this time round predictions are hard as the leading indicators we use to gauge the performance of the labour market in the US appear mixed. Some of the precursors to the report point towards a mild rebound in the employment metrics while other call for further weakness.
Truth be told, another month of anaemic performance in the US job market will cause more doubts on whether the Fed will be able to move forward with their tightening plans on September and the Dollar will take a hit. On the other hand a pickup in the employment report and at the same time an improvement of the wage growth metric would allow the US Dollar to claw back some of the ground it has lost over the past couple of weeks.
With the Euro trading at 1.1200 this morning and the Cable coming off its 1.5500 highs to trade around the 1.5400 area the stakes are high and we could see increased volatility when the news hit the wires. Given the importance of the report today and its guaranteed medium-term effects we could advise to remain cautious today and instead take advantage of the report’s aftermath next week as any kind of result will have a lasting effect in the major currencies’ outlook.
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