British pound sterling: Why a negative non-farm payroll surprise could support GBP and EUR vs USD

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Published on Friday, 06 July 2012 09:20

Written by Will Peters

International Money Transfers at our sister site

"We suggest positioning for negative non-farm payroll surprises by being short USD versus other low-yielding major currencies" - Barclays.

This morning sees the pound sterling (Currency:GBP) advance yet further against the euro, the single currency has taken a beating following the admission by the ECB that the growth prospects for the Eurozone remain dire.

The pound euro exchange rate is 0.12 pct in the blue at 1.2555. The pound dollar exchange rate is 0.13 pct higher at 1.5545.

The pound Australian dollar exchange rate is 0.31 pct up at 1.5131. (Visit our IMT site for the latest FX forecasts, access is issued free via this Facebook entry-path).


Yesterday the market driver for global currencies were the policy decisions made at the Bank of England and European Central Bank.

There should be more action in store for us come early afternoon when the US Non-farm Payroll data is released.

One would expect a negative surprise to support the US dollar in the typical dash-for-cash reaction that tends to suit the global reserve currency.

However, a note from Barclays today warns that a negative surprise would in fact support currencies like the euro and pound sterling.

A note to clients on the matter from Barclays says:

"We suggest positioning for negative non-farm payroll surprises by being short USD versus other low-yielding major currencies (EUR, GBP, or JPY). Returns post-payrolls with negative surprises are typically small when risk is "on," but the payoff should be better if the surprise turns out to be large, as markets will likely price in a higher probability of QE3.

"We also suggest tactically lightening up short EUR/risk exposure ahead of the release. A small negative surprise should not have major implications for the aforementioned crosses, but they may rally if surprises are large."

As mentioned yesterday's news event involved central banks from three of the largest global economies (China, the euro area and the UK) eased policy yesterday. Despite their efforts, risky assets across markets are trading weaker, the USD is stronger and volatilities higher. Why? For one, most of the measures contained few surprises and were largely expected by the market.