US non-farm payrolls demonstrate market overreaction.

Overreaction in the currency markets was demonstrated effectively today in the pound/yen currency pairing following the US non-farm payrolls data. Immediately following the release of the figures, the pound plummeted sharply as demand for the relative safety of the Japanese currency was supported by the substantial growth in US unemployment, moving up 0.2% to 9.7%, its highest level in 26 years. However, this knee-jerk reaction, that saw the pound slide 88 pips in 6 minutes, was immediately reversed with the pound proceeding to advance a full percent to an inter-day high of 151.70 as investors realised the relative strength of the payroll data itself that saw fewer jobs lost in August than had been forecast. As investors began to digest the data, the rate settled back down to its morning trading price of around 151.80. This blip in an otherwise steady trading day between the two is a fine example of how trader ambiguity can lead to overreaction on the markets following significant economic information.