Pound Sterling weakens against US Dollar after upbeat US NFP report.

The Pound Sterling faces an intense sell-off against the US Dollar after upbeat US NFP data for May.
Strong US NFP report has negatively impacted expectations for Fed interest-rate cuts in September.
The UK’s strong wage growth remains a major driver of stubborn service inflation.

The Pound Sterling (GBP) falls vertically from 1.2800 against the US Dollar (USD) in Friday’s New York session. The GBP/USD weakens as the United States (US) Nonfarm Payrolls (NFP) report for May showed that labor market conditions remain tight even though the Federal Reserve (Fed) is maintaining a restrictive monetary policy framework for a longer period.

The employment report showed that employers added 272K payrolls, higher than the estimates of 185K and the prior release of 165K, downwardly revised from 175K jobs. However, the Unemployment Rate rose to 4.0% while investors expected it to remain steady at 3.9%. Meanwhile, Average Hourly Earnings data, which gauges wage growth momentum, jumps to 4.0% from the consensus of 3.9% and April’s reading of 4.0%, upwardly revised from 3.9% annually. On a monthly basis, wage growth rose at a faster pace of 0.4% than estimates of 0.3%

Daily digest market movers: Pound Sterling underperforms the US Dollar

The Pound Sterling delivers a perpendicular fall to 1.2720 against the US Dollar as US NFP grew at a faster pace than what investors anticipated earlier. Stronger-than-expected wage growth and payroll data have diminished expectations that the Fed will start reducing interest rates from the September meeting.
Recently, many labor market-related economic indicators had pointed to normalizing job conditions, which prompted market speculation for the Fed to begin lowering its key borrowing rates in September. The US JOLTS Job Openings data for April and ADP Employment Change for May showed that fresh openings and private payrolls, respectively, were lower than expected. Also, the US Department of Labor said on Thursday that Initial Jobless Claims for the week ending May 31 increased more than expected. This adds to evidence that the labor market is losing strength.
However, upbeat US NFP report has indicated that the labor market remains strong. This has led to a sharp decline in Fed rate-cut expectations. The CME FedWatch tool shows that traders see a 54% chance for rate cuts in that month, down from 68% after the US NFP report release.
In the United Kingdom, the Pound Sterling will be guided by the Employment data for the February-April period, which will be published on Tuesday. The country’s number of employed people has declined for three consecutive times. Indication of more layoffs would hurt the Pound Sterling as it would boost traders’ bets for early rate cuts by the Bank of England (BoE).
Investors will also focus on the UK Average Earnings data, a measure of wage growth. UK’s strong wage growth momentum has remained a major driver to high service inflation, which has been a barrier for price pressures in returning towards the 2% target.