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NonFarm Payrolls have not shifted rate expectations

NonFarm Payrolls have not shifted rate expectations

The US Dollar was among the best performers in the currency market last week following Friday’s better than expected employment report. The US unemployment rate remained unchanged at 4.9%, however the Average Hourly Earnings increased by 0.3% for July and non-farm employment increased by 255k, beating the 180k market expectation.

As a result, the Dollar gained over a cent against the Euro, with EURUSD falling from 1.1156 to 1.1050. Sterling also suffered from this result on Friday, leaving GBPUSD’s 1.3000 threshold vulnerable. Following Thursday’s Bank of England rate decision, stronger than expected US data caused Cable to crash further. GBPUSD opened this morning at 1.3051 following no data releases from the UK at the end of the week.

The Federal Reserve is struggling to advance its efforts in normalising monetary policy; strong labour market conditions suggest factors outside the US are to blame. According to Bloomberg calculations, the Fed funds (US Interbank lending) futures market does not show a greater than 42% chance of a rate hike at any meeting through to the end of next year.

There is no tier one data due for release from either the UK or the States today, so both markets will likely struggle for direction ahead of tomorrow’s data releases. Monthly Manufacturing Production Goods data and UK Trade Balance will drive Sterling performance tomorrow.

The Euro failed to make any movements versus the Pound over the weekend as the single currency closed on Friday and opened this morning at around the 1.1785 levels. Little data in the Eurozone area today will leave the Euro in the hands of Sterling’s performance. There is already speculation that European Central Bank staff will alter monetary policy in September. Investors are predicting another time extension to the Asset Purchasing scheme and also changes to how it is distributed (the Capital Key).

The Bank of Japan (BoJ) has also signaled that there will be a review of monetary stance next month. Neither the BoJ’s increased equity purchases and new Dollar lending facility, nor the “fresh water” in Abe’s fiscal plans have impressed investors. There is some speculation that BoJ Governor Kuroda may abandon the 2% inflation target.

Data to Watch: 3pm US Labour Market Conditions.

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