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Jobs market steadies the Dollar

Jobs market steadies the Dollar

USD
The Greenback, when tracked by the US Dollar Index, remains on a positive footing at the beginning of the week and is looking to consolidate above the 89.00 level. After losing as much as 6% of its value over a seven-week period, the Dollar celebrated a week where it didn’t decline.

The Dollar is on the rise as higher wage growth and continued strong economic data raise interest rates. Payrolls came in above expectations at 200K during the last few months while average hourly earnings, a proxy for ‘wage inflation’, rose at an annualized 2.9%.

The market has priced in that the Federal Reserve (Fed) will be hiking rates three times this year. Recent results did nothing but confirm the solid health of the US labour market, while at the same time paving the way for a rate hike by the Fed at the March meeting.

Today in the American session, US ISM non-manufacturing will be the salient event seconded by Markit’s services PMI for the month of January.

GBP

The Pound was under pressure over the weekend from weaker-than-expected construction data coupled with the usual Brexit headlines as David Davis and Michel Barnier plan to meet in London today with much to discuss.

In the UK, the most important event is the Bank of England meeting on Thursday, which is set to include an updated Inflation Report and a press conference. While economic data have been more or less in line with expectations since the last Inflation Report in November, the market movements are interesting. On one hand, the oil price is now higher than projected, which should lift the inflation projection in the short-term, while on the other hand, stronger Sterling means lower inflation.

The most important data release is the PMI service index for January due out today. Both the Lloyds Business Barometer and the service confidence indicator from the EU survey suggest the service index may have risen marginally. The market estimates an increase to 54.6 from 54.2. Service sector growth remains positive but still not as high as previously in the cycle.

EUR

The Euro is lower against the stronger Dollar but is higher elsewhere as the continued upbeat economic data support the single currency. The Euro is trading little changed at around 1.2450 against the US Dollar, recovering from post-NonFarm Payroll lows of 1.2400 seen on Friday.

Heading into Europe on the first trading day of the week, we have a raft of final services PMI reports due on the cards from the Euro area economies followed by the Eurozone Sentix Investor Confidence and retail sales data.

The main risk event for markets today will be the European Central Bank (ECB) President Draghi’s speech, in Strasbourg at 16:00 GMT.

Data to Watch:

08:55 EUR Markit Services PMI (Jan) – (Germany)
08:55 EUR Markit PMI Composite (Jan) – (Germany)
09:00 EUR Markit Services PMI (Jan)
09:00 EUR Markit PMI Composite (Jan)
09:30 GBP Markit Services PMI (Jan)
14:45 USD Markit PMI Composite (Jan)
14:45 USD Markit Services PMI (Jan)
15:00 USD ISM Non-Manufacturing PMI (Jan)
16:00 EUR ECB President Draghi’s Speech

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