Pound Hits Three Week High Against Dollar as US Jobs Data Disappoints
By Aboki Forex —
The British pound rose to a three week high against the US dollar on Tuesday, reaching $1.3401, its strongest level since June 17. The move came as the dollar continued to slip after a weaker than expected US jobs report last Thursday.
Dollar Slips on Jobs Data and Oil Price Drop
The dollar had hit a 13 month high in late June against its major peers as traders increased their bets on a Federal Reserve rate hike this year. But the US Iran framework agreement has pulled down oil prices sharply. Thursday's nonfarm payrolls report showed the economy added fewer jobs than expected in June, causing markets to reduce their wagers on rate rises and pushing the dollar lower again.
Sterling slipped slightly after hitting the high to trade at $1.338. The pound also continued to trade at a 13 month high against the euro, with the euro zone's currency slightly lower on Tuesday at 85.41 pence. Euro zone inflation came in lower than expected in June, data showed last week, causing markets to trim their bets on European Central Bank rate hikes.
Oil Prices and UK Politics Support Sterling
Analysts say the pound has benefited from the fall in oil prices, which surged earlier this year due to the Iran war and threatened to hit the UK economy, which is a major importer of energy with low levels of gas storage. Likely next Prime Minister Andy Burnham has also committed to the government's fiscal rules, allaying some fears among investors that the left leaning former mayor of Greater Manchester would ramp up spending once in power.
“Sterling's surprising resilience amidst recent political turmoil reflects a simple reality – much of the bad news has already been priced in,” April LaRusse, head of investment specialists at Insight Investments, said. “Investors have spent years positioning for UK underperformance, so as outcomes prove less negative than feared, and fundamentals begin to stabilise at the margin, the currency is finding support.”
What This Means for the Naira and Nigerian Businesses
A stronger pound against the dollar could mean modestly higher costs for Nigerian businesses importing goods from the UK, as the naira remains under pressure against the greenback. However, the broader dollar weakness may provide some breathing room for the naira in the weeks ahead, depending on how global oil prices and central bank policies evolve.