Trump fails to improve employment
The UK Purchasing Managers’ Index (PMI) manufacturing index increased to a four-month high of 56.9 for August from a revised 55.3 for July with firm gains across all sectors. The data supported confidence in the UK outlook and initially strengthened the UK currency against its rivals. Sterling was able to gain further support with some buying support on valuation grounds. The fresh round of verbal intervention from European Central Bank (ECB) sources drained Euro support and the Dollar was unable to gain strong backing, triggering an underlying reassessment of the relative Sterling outlook.
The latest Commitments of Traders (COT) data recorded a rise in short, noncommercial Sterling positions for the third successive week and reached its highest peak since early May. This maintains the potential for short covering, especially if the spot rate gains ground.
Overall, the Pound against the Euro ended on 1.0840 last week whilst against the Dollar it briefly challenged the 1.3000 area. Further, the UK currency index advanced to a three-week high during the New York session but global risk aversion has undermined UK currency support.
The calendar this week brings August construction and services PMI surveys (Monday and Tuesday, respectively), the BRC retail sales report for the same month (Tuesday) and July production and trade data (Friday).
US average hourly earnings was held at 0.1% for the month with a 2.5% annual increase, although this is liable to have been distorted by the early survey week. The August Nonfarm payroll figure printed lower than expected at 156,000 versus the forecast of 180,000, while the July increase was also revised lower to 189,000 from 209,000. There was, however, a firm increase in manufacturing employment for the month.
The unemployment rate increased to 4.4% from 4.3% previously as reported employment fell in the household survey. The US ISM manufacturing index was notably stronger than expected, with an increase to 58.8 for August from 56.3 previously and the strongest reading since late 2014 with strong readings for all major components. The stronger ISM data helped boost confidence in the US outlook and helped offset the negative impact of the employment data.
Please note the US market is shut today, so Dollar payments will not be processed until tomorrow.
The Euro witnessed a bullish start of the week testing the 1.1900 handle against the Dollar and moving under the 1.09 barrier against Sterling.
On Friday, the EURUSD pair experienced a very volatile trading session, initially having rallied hard to 1.1980 levels based on poor US labour market reports. Soon after, the latest (ECB) headlines hit the wires and knocked off almost 130 pips to test 1.1850 levels.
It was widely reported that the ECB may not be ready to announce the changes to its QE program until December this year. ECB member Nowotny, however, stated that recent Euro appreciation is not a big cause for concern. The Euro has rallied back to the 1.1900 area this morning, with subdued trading volumes ahead of the US Labor Day holiday as geopolitical fears dominated.
Stepping into a new week, all eyes remain on the ECB monetary policy announcement for the next direction of the Euro. In the meantime, markets look forward to the Eurozone Sentix Investor Confidence data due later today amid holiday-thinned markets.
Data to Watch:
US & Canada – Labour Day
9:30am UK PMI Construction August
10:00am EUR PMI Producer Price Index July