Why should you care about US Non-Farm Payrolls?
With all the talk about Interest Rate rises that never seem to appear, why would today’s results affect us? The Fed is waiting for clear signs that the global economy is stable and their own is strong enough to sustain itself after a rate rise. During last month’s Fed rate announcement the hints of China’s slowdown was given as a reason for inaction and moved market expectations of the timing of a UK interest rate rise back to Q3 2016, and risk sentiment strengthened the Euro versus the Pound.
As investors expect the US to pave the way and the UK to follow, a figure today of 250k jobs added to the US market, instead of the expected 200k, could bring a US rate rise nearer, and by inference the UK’s nearer too. Thus, a barnstorming US result today could mean Sterling strengthens across the board. If the figures come in as expected or worse, Sterling could well suffer against the Dollar and Euro.
Sterling appears to be the most vulnerable currency (dropping Bank of England rate hike bets) and there was further bad news for the Pound yesterday following the release of the UK’s Q2 Gross Domestic Product data. Earlier releases of this data had pointed to an expansion of 2.6% in domestic economic activity over the twelve months to the end of June, so the downgrading of this figure to a year-on-year 2.4% has dampened expectations.
Despite disappointing CPI figures earlier in the week, confirming the continent’s economy has slipped back into deflation, the Euro still remains relatively strong against both Sterling and Dollar as of this morning. However, in light of a near-empty European data calendar today, we are likely to see movement, notably in EUR/USD coming from the Non-farm Payrolls outcome from the States later today. It would seem that the momentum for Euro strength is slowing too as it struggles to break the next resistance level against GBP.
As inflation still lags and strength in the currency could further hinder growth, there is a likelihood that the European Central Bank could increase the scope of it current €65bn quantitative easing programme soon. Such a move would likely reverse the current strength and weaken the single currency.
Data to watch: US Non-farm Payrolls at 1.30pm.