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The market looks for a headline non-farm payrolls figure of 130K, and the forex market's reaction function to weak U.S. data is to sell dollars.
This suggests, an uptrend in the Pound to Dollar exchange rate (GBP/USD) would be emboldened by anything below 130K, with the strength of the move depending on the size of the miss.
However, currency strategists at TD Bank say there is an asymmetry heading into the report, given the crowded short positioning in the Dollar and low expectations.
"A softening in payrolls momentum is widely expected. A meaningful downside surprise (in the UE rate) is likely needed to push the USD lower," says a note from TD's securities division.
"If the unemployment rate remains unchanged, we could see an asymmetric response to a stronger payrolls headline number given how stretched markets are in the short USD trade," it adds.
This points to downside risks for Pound-Dollar heading into the weekend in the event of an on-target, or above-consensus reading.
Markets are erring to a below-consensus reading owing to a run of poor U.S. economic surveys of late.
"All the backtesting I have done with Conference Board, Initial Claims, Continuing Claims, and ADP points to a weaker than expected NFP and it’s rare to have so many very good indicators all saying the same thing," says Brent Donnelly, an analyst and trader at Spectra Markets. "Job weakness continues."
Thursday's U.S. jobless claims rose to an eight-month high, a surprise that contributed to a rally in the Pound-to-Dollar to a 40-month best.
Above: GBP/USD at monthly intervals.
Initial jobless claims rose to 247K in the week ending May 31, from 239K, beating the consensus estimate for 235K. "The further climb in the four-week average of initial claims to its highest level since late October is very hard to dismiss," says Oliver Allen, an economist at Pantheon Macroeconomics.
He explains that unadjusted claims have been climbing at an average year-over-year pace of about 5% for a few months now, indicating that a gradual but genuine slackening of the labour market is underway.
Allen cites other survey numbers that point to a slowing U.S. labour market, including the April JOLTS report, which showed the economy’s lay-off rates have crept up a bit lately. Challenger job cut announcements for the private sector remain around the top of their post-2021 range in May.
"A relatively weak hiring rate means that the share of newly unemployed workers who are struggling to find a new job quickly is slowly creeping up too," says Allen.
For now, any U.S. Dollar strength will be judged to be short-lived, with analysts maintaining a view the bigger trend of declines is here to stay.
"Overall, we like to sell USD on rallies on fundamentals," says TD Securities.