Image: Photo by Anthony Quintano. Licensing: CC 2.0. Sourced: Flickr.
As predicted, the Dollar has risen on the back of a decent U.S. job report.
The Pound to Dollar exchange rate (GBP/USD) retreats to 1.3508 (-0.44%) after U.S. employment figures beat expectations, reading at 139K, whereas 130K was predicted.
The beat of expectations is not significant, but the rise in the USD is entirely consistent with a market that is increasingly positioning itself against the Dollar.
"We could see an asymmetric response to a stronger payrolls headline number given how stretched markets are in the short USD trade," said a note released by TD Securities ahead of the release, correctly predicting the USD would rally should the figure meet expectations.
Markets are increasingly invested in bets against the Dollar, anticipating 2025's decline will continue. This leaves it rather crowded, meaning the prospect of a counter-trend move is building.
"There have been no clear signs of a slowdown in the labour market so far. Job creation remains solid. The weekly initial jobless claims have recently increased slightly. However, this is not to an alarming extent," says Dr. Thomas Gitzel, Chief Economist at VP Bank.
The U.S. Dollar's decline during 2025 is built around a thesis that erratic policy making by Donald Trump and rising import tariffs would combine to slow the economy and diminish U.S. exceptionalism in the eyes of investors.
The counterpoint to this would be an economy that sails through tariffs, reviving the 'exceptionalism' trade in the process.
Above: GBP/USD at daily intervals with our Week Ahead Forecast annotations, which were drawn on Monday.
Under such a scenario, the Dollar would turn higher again and recover from recent two-year lows, pulling Pound-Dollar back from highs at 1.35 and back into the 1.20s.
"The May nonfarm payroll report gives the Fed no cause for concern, once again demonstrating the resilience of the U.S. labour market," says Felix Schmidt, an analyst at Berenberg Bank.
The unemployment rate was flat at a still-healthy 4.2%, average hourly earnings stayed at 3.9%, defying expectations for a decline to 3.7%.
This is consistent with ongoing inflationary pressures in the economy, reducing the need for the Fed to cut interest rates, which is ultimately supportive of the Dollar.
"The numbers confirm a continued solid labour market, suggesting no need for further monetary easing now," says Knut A. Magnussen, an analyst at DNB Carnegie.