The December US Labour market showed that payroll growth rose by less than the expected forecast, with the announced 148,000 being below the expected 190,000. The biggest job gains for the US economy in the healthcare, construction and manufacturing sectors. Cable exchange rates have remained fairly unchanged since the figures were announced, as they were countered by the announcement that the unemployment rate held at 4.1% and wage growth picked up to 0.3% from 0.1% in November.
The Non-farm Payroll report has the capability of moving GBP/USD exchange rates, so why has it remained so subdued? One reason from the UK’s side is that Brexit is rumored to be the biggest influence on Sterling exchange rates this year, and Parliament hasn’t come back from the Christmas break yet which explains the lack of movement on Pound Sterling exchange rates of late.
However, on the US side of things… Arguments have been made that today’s labour report does little to change the opinions of Federal Reserve members who are looking to raise interest rates in the US.
The modest acceleration in wage growth today is a key factor for the GBP/USD rate holding firm, and not pushing the rate through 1.36 this afternoon. Wage growth is a key indicator as to whether an economy can support an interest rate hike. If people’s wages are increasing it is more likely that people will want to save their money, so an economy can afford to raise interest rates.
Economists and analysts are still debating how many times the US will raise interest rates this year. At present the first interest rate hike is scheduled for the March FED meeting with a further two more planned for later in 2018. If the US economy shows further frailties I wouldn’t be surprised for the ‘dot-plan’ to be reduced to two and we could then see the US Dollar weaken.