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October Deadline Set

October Deadline Set

GBP

The UK PMI construction index declined to 54.6 for August from 58.1 previously and well below consensus forecasts of 58.5. Although the sector remained in expansion territory, there was a net slowdown in growth with activity hampered by underlying uncertainty.

Bank of England MPC member Saunders noted that the UK economic recovery had been stronger than expected in May, but conditions were now fading. He also commented that the bank needed to act against downside risks and he expected a further increase in quantitative easing would be needed.

The UK currency dipped below 1.32 after the US employment data, but gradually regained ground to trade above 1.3250.

UK Chief Negotiator David Frost warned that the EU stance may limit progress that can be made in talks which resume on Tuesday and also warned that the UK was not afraid to walk away. Prime Minister Boris Johnson also stated that a deal was needed by October 15th to ensure ratification and both sides should move on if there is no agreement by then. The sharp increase in tensions continues to undermined Sterling and as we begin a new week of trading, the UK currency currently finds itself just above the 1.32 mark against the Dollar while the Euro advances to 1.1165

 

USD

US non-farm payrolls increased 1.37m for August from a revised 1.73m the previous month and slightly below consensus forecasts of 1.40m. The increase in manufacturing jobs was held to 29,000, but there was a strong increase in retail jobs and a further increase in hospitality. There was a big boost in government jobs of over 340,000 as payrolls were increased on a temporary basis to manage this year’s census.

The unemployment rate declined to a 5-month low of 8.4% from 10.2% and well below expectations of 9.8% as the household survey recorded a sharp increase in employment. Average hourly earnings increased 4.7% in the year, unchanged from the previous reading.

Although the unemployment rate declined sharply, there were additional concerns over underlying employment trends as the increase in private payrolls slowed. There was also a further sharp increase in the number of long-term unemployed which will increase concerns over longer-term economic scarring.

EUR

The Euro is looking to extend from its overnight range play against the Dollar as investors remain cautious starting out a fresh week with the main event being the European Central Bank monetary policy decision on Thursday. The US market is also closed today in observance of Labor Day.

The Dollar initially rallied on Friday on the upbeat jobless rate and wage growth data but the sellers soon returned amid concerns over the fiscal stand-off and knocked the greenback, which prompted a recovery to the 1.1855 for the Euro. Euro Bulls however, failed to sustain as the ECB’s continued concerns at the overvalued exchange rate continue to weigh on the common currency.

A sharp rise in the coronavirus cases in Germany, France and Spain could also emerge as a cause for concern, capping the upside attempts in the common currency as the dreaded second-wave of virus is picking up pace in Europe, as Summer draws to an end.

As of writing, the Euro currently trades just above the 1.1830 against its US counterpart.

 

 

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