USD

The dollar strengthened against all major currencies on Friday after the release of strong labour market data. Non-Farm payrolls data came in well above expectations and showed that the US economy created 517,000 new jobs, higher than market consensus, and giving further leeway for the Federal Reserve to continue to hike interest rates. The forecast predicted that the US economy would have created 193,000 new jobs, lower than the previous figure of 223,000. However the data released on Friday showed a massive increase in new jobs created.

With labour market data being very robust, it also signals to the market that the Fed could still increase interest rates further, even though the central bank hiked rates by only 25 basis points last week. The bank could see the US economy strong enough to absorb higher interest rates for a longer period of time. The Fed’s ultimate aim is to bring inflation closer to its 2% target. All of this is likely to benefit the dollar in the near term.

Furthermore, average hourly earnings rose 0.3% after gaining 0.4% in December. That lowered the year-on-year increase in wages to 4.4% from 4.8%, but it is still higher than the market consensus of 4.3%. With wages and inflation falling, the next data release for inflation next week will give more clues to the market has to what the Fed will do next.

GBP

The pound fell against both the US dollar and euro on Friday after the release of surprisingly strong US data. As stated above, the Non-Farm payrolls figures exceeded expectations in the US causing the dollar to strengthen thus causing Sterling to fall. 

With the jobs market being tight, it means companies would be expected to deliver strong wage packages to attract talent, which in turn can lead to higher inflation. The market is predicting both central banks, the Fed and BoE, to change their monetary policy at some point but this will be data-dependent.

Key announcements

08:40 – GBP – MPC member Mann speaks

17:00 – GBP – MPC member Pill speaks