London RationalFX

RationalFX: Strength needed in GBP

RationalFX: The pound had a troubled start to the new quarter, with losses against most majors yesterday. Largely due to a speech by Bank of England (BoE) Governor Bailey, a dovish speech cause the pound to weaken.

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Much like every other central bank, Bailey held the stance that high current inflation was simply transitory and would eventually subside. He reiterated that the BoE expected further price pressures in the short term as a result of current supply and demand struggles.

Bailey acknowledged the UK economy was experiencing a strong economic recovery in response to the progressive easing of restrictions and growing confidence of people.

This being said, his view on inflation remains unchanged, saying that “it is important not to over-react to temporarily strong growth and inflation, to ensure that the recovery is not undermined by a premature tightening in monetary conditions.”

The BoE is unlikely to be a source of support for sterling in the near-term and therefore, the currency must find direction elsewhere.


Today sees the release of the highly anticipated US Non-Farm Payrolls. The Labour Department’s closely watched employment report will likely show that the economy closed the second quarter with strong growth momentum, following a reopening made possible by vaccinations. More than 150 million people are fully immunized, leading to pandemic-related restrictions on businesses and mask mandates being lifted. A consensus reading of 690k is expected against the previous readying of 559k.

Despite the acceleration in hiring, employment gains will probably still be less than the million or more per month that economists had been forecasting at the beginning of the year. There has been a lack of people willing to work in the US as unemployment benefits have outweighed the thought of returning to work. If the consensus comes in correct today, employment would still be about 6.9 million jobs below its peak in February 2020. As we know from the recent Fed meeting, this is a key number that needs to decrease before QE tapering can occur.

This being said, preliminary data leading up to today has been positive. US private payrolls beat expectations and jobless claims dropped harder than forecast.

The dollar has gained against the majority of its peers in the run up to today’s data release. While the consensus is set to come out better that the previous month, any drop below last month or consensus reading will cause dollar weakness. Similarly, any significant reading higher than consensus will cause dollar strength.

Key announcements

12:30 – US Nonfarm Pay rolls ( 690k vs previous 559k)

12:30 – EUR President Lagarde speaks

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