Can Nonfarms save the Dollar?
The UK Purchasing Managers Index (PMI) services sector strengthened to 53.8 for July from 53.4, above consensus forecasts of 53.6 as employment growth remained strong. As expected, the Bank of England (BoE) maintained interest rates at 0.25% and the 6-2 vote also met consensus forecasts following Kristin Forbes departure. Andy Haldane didn’t switch to the hawkish side of the vote. Whilst inflation forecasts pretty much stayed unchanged, softer growth numbers – from 1.9% to 1.7% – pushed Sterling lower.
Markets generally take central bankers at their word so the change in tone from Governor Mark Carney rocked Sterling, pushing it more than 100 pips lower versus USD to lows below 1.3120, and decisively through the 1.1100 barrier against the Euro.
The US Currency made gains over the last few days due to the weakness of many of its major peers, as the negative sentiment towards the Greenback remains intact. If anything, chances of a rate hike in the US have decreased further based on dovish comments from the Fed’s officers. Political jitters keep arising as President Trump seems unable to focus beyond the Obamacare repeal bill, Russia, and North Korea, still struggling to form a reliable team around him.
The markets have one more milestone to surpass this week which is the US monthly employment report, aka Nonfarm payrolls, to be released today. The country is expected to have added 183k new jobs in July, after June’s positive surprise of 222k. The 4.4% unemployment rate is still expected to drop to 4.3%, while average hourly earnings are expected to be up 0.3% on a monthly basis, and by 2.4% annually.
The Euro yesterday pushed below the 1.1100 barrier against the Pound after the BoE rate hike disappointed markets with a vote of 6-2 vs a potential 5-3 configuration.
The final Eurozone PMI services sector index held at 55.4 from the flash reading despite a slight weakening of the German data. Confidence surrounding the overall growth outlook was boosted by retail sales data being stronger than expected with a 0.5% monthly increase. There were no comments from European Central Bank (ECB) officials as summer conditions hold.
There is no major data out for the Euro today so, similar to yesterday, the Euro will be at the peril of the US Nonfarm Payrolls and unemployment rate for July.
Data To Watch:
12:30pm USD Nonfarm Payrolls (Jul), Average Weekly Hours (Jul), Average Hourly Earnings (YoY) (Jul), Labor Force Participation Rate (Jul), Unemployment Rate (Jul), Trade Balance (Jun)
5:00pm USD Baker Hughes US Oil Rig Count