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GBP/USD falls to 3-week lows, as solid jobs data triggers Dollar rally

ForexAug 05, 2016 06:06PM ET
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GBP/USD fell mildly on Friday to close below 1.31 for the first time in three weeks -- GBP/USD fell mildly on Friday, dropping to 3-week lows, as strong U.S. jobs data for the second consecutive month bolstered the prospects of an interest rate hike from the Federal Reserve before the end of year, creating upward pressure for the volatile Dollar.

The currency pair traded between 1.3022 and 1.3175, before closing the U.S. afternoon session at 1.3070, down 0.29%. It came one day after the British Pound fell by more than 1.5% versus its American counterpart, following the Bank of England's decision to cut its benchmark rate to a record-low of 0.25% and implement a host of easing measures. In Friday's session, the Pound Sterling closed below 1.31 against the Dollar for the first time since July 11.

On Friday morning, the U.S. Department of Labor said in its monthly employment report that the economy added 255,000 nonfarm payrolls in July, topping the high end of analysts' expectations by 70,000 and erasing lingering concerns that June's robust report may have been a fluke. Adding further optimism to July's reading, the labor participation rate ticked up by 0.1 to 62.8% while the unemployment rate remained flat at 4.9%.

Within the report, the gains were driven by increases in professional & business services and temporary help, which rose by 70,000 and 17,000 respectively. Hiring in the construction and retail industries, which have lagged throughout the year, also picked up last month each adding at least 14,000. Meanwhile, employment in government and financial activities edged up, offset slightly by declines in the mining sector. Notably, average hourly wages surged by 0.3% in July and are now up by 2.6% over the last year. For the month, average hourly earnings of private-sector production and nonsupervisory employees rose by seven cents to $21.59. Analysts expected to see a 0.3% increase in average hourly earnings, one month after wages inched up by 0.1% in June.

Following the release, the CME Group's (NASDAQ:CME) Fed Watch tool placed the odds of a September rate hike by the Federal Open Market Committee (FOMC) at 18%, up considerably from 9% over the previous session. The chances of a December rate hike from the FOMC also increased to 39.7% on Friday, up from 29.4% a day earlier. There is also a 6.7% chance the FOMC will approve two rate hikes of 25 basis points each before the end of the year, the CME Group added. Earlier this week, Chicago Fed president Charles Evans said it could be appropriate to raise rates once this year if economic conditions continued to improve, while Atlanta Fed president Dennis Lockhart failed to take a September rate hike off the table.

Any rate hikes by the Fed this year are viewed as bullish for the Dollar, as foreign investors pile into the greenback in order to capitalize on higher yields.

Elsewhere, Sterling net short contracts surged to 82,515 this week, hitting a fresh record-high, according to data released by the U.S. Commodities Futures Trading Commission on Friday. Net long positions in the dollar fell by more than $750 million to $12.81 billion for the period ending on Aug. 2, the CFTC said. GBP/USD has slid more than 12% since voters in the U.K. decided to leave the European Union in a historic referendum on June 24.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.50% to an intraday high of 96.50, before falling back to 96.19 at the end of the U.S. afternoon session. The index is still down by more than 1% since hitting four-month highs of 97.62 early last week.

GBP/USD falls to 3-week lows, as solid jobs data triggers Dollar rally

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