Bad news for US good news for UK
A busy few days in the FX markets concludes today with the, as ever, highly anticipated US Non-Farm Payrolls report. The expectation (particularly after Wednesday’s disappointing ADP private employment report) is that the data will point to continued weakness in the US labour market. Thus, a poor number will weigh on the USD going into the weekend as it should raise expectations that the Fed will act more quickly with another bout of QE. As the summer has dealt the markets an assortment of weak US economic data, there are growing reports that conviction is strengthening among a growing number of officials at the federal Reserve that it should risk another bout of QE, further adding credence to the argument that Washington is happy to see the Dollar get lower. Goldman Sachs have reinforced this argument, with sharply revised forecasts for the fortunes of the greenback.
Yesterday, as-you-were statements from both the Bank of England and ECB for unchanged interest rates and QE programs for both economies were the key events. Sterling did bounce sharply after the 12pm announcement from the Bank. Though ever unlikely, markets had priced in a possibility that the QE program for the UK may be expanded given the recent slump in positive data. When this didn’t materialise, the Pound strengthened and we briefly saw above 1.60 for GBP/ USD before dipping back to current levels. Regarding the Euro, traders will have barely looked up from their desks at the ECB announcement, which was 100% within expectations.
In the UK this mornings data on producer prices came in higher than anticipated, surprising the markets that were expecting it to show a cooling in annual inflation on the output measure. The data has done little to offset the worse inflationary news coming earlier in the week from the British Retail Consortium’s Shop Price Index.