US Payroll Data to End the Week

The BoE and the ECB kept their monetary policies unchanged in their meetings held yesterday, suggesting a watchful approach from the central banks. The US attracted most market attention yesterday after macro data surpassed estimates, stoking speculation of an early withdrawal of the Fed’s massive stimulus measures. For further guidance on this front, eyes will focus on the US non-farm payrolls data later today. Back home, data just out has showed that construction activity in the UK improved substantially for July. In the midst of clear evidence that the UK recovery is gaining momentum, the NIESR upwardly revised Britain’s growth forecast for 2013 and 2014.

Pound Sterling – UK Markets

The early positive trend in the Pound-US Dollar pair proved short-lived yesterday, as the Pound pared its early gains and slipped below the 1.52 level following upbeat sets of US manufacturing and jobless claims data, which leaves more room for the Fed to alter its bond purchase programme in the near term. The Pound has held firm against the majors in today’s session following a more than expected rise in construction PMI for July, in line with yesterday’s strong manufacturing report. Furthermore, the NIESR raised Britain’s growth forecast to 1.2% for the current year and 1.8% for 2014, citing strong consumer spending. The recent green shoots in the UK economy partially explains the thought process of the BoE in keeping its monetary policy unchanged in its meeting held yesterday. The focus now shifts to services PMI and the inflation report, scheduled next week, for meaningful insights into future policy moves. With a light domestic economic calendar today, traders await the US jobs report due later for further direction.

US Dollar – US Markets

The US Dollar nudged higher against the majors yesterday after robust domestic macro data further strengthened market speculation of the US Fed scaling back its massive stimulus measures sooner than envisaged. Despite the recent mixed regional economic reports, the ISM data released yesterday revealed that the manufacturing barometer of the US economy expanded for July at the fastest pace in more than two years. Further lending a helping hand, data indicated that initial jobless claims dropped last week to its lowest level since January 2008. With yesterday’s data further boosting the nation’s growth prospects, all eyes in today’s trading session are focused on the non-farm payrolls report. Today’s data is expected to reveal a slower pace of job additions for July, with a marginal decline in the unemployment rate. However, any positive surprises from the report will strengthen market expectations of the Fed altering its policy stance in the near future, putting pressure on high yield currencies. Also, factory orders and personal spending data due later today will gain modest market attention for further insights into the strength of US economic growth.

Euro – European Markets

Buoyant US macro data and the ECB Chief’s commitment to keep interest rates low for the foreseeable future kept a tight lid on high yield currencies, leading the single currency to nudge lower against the US Dollar yesterday. However, the euro managed to recoup some of its early losses against the Pound yesterday. With yesterday’s PMI data indicating an upturn in manufacturing activity the ECB President, Mario Draghi, opined that the worst of the economic downturn was over and that the Euro zone economy is showing signs of stabilising. Against this backdrop retail sales, as well as industrial production data due next week, will grab market focus. Although the political landscape in Spain remains murky, the nation witnessed robust demand at the bond auction yesterday, primarily supported by a relatively improved GDP report. On account of a light European economic calendar today, developments taking place in the US will hold market interest for further cues to risk appetite.

Other Currencies – Highlights

Despite upbeat manufacturing PMI data, the Swiss Franc failed to gain traction against the US Dollar in today’s trading session. A report out earlier today revealed that manufacturing activity in Switzerland surged for July to reach its highest level since May 2011, buoyed by increased production and job market improvement. Today’s data come on the back of upbeat KOF leading indicators released earlier this week and has added to recent signs that a sustainable recovery in the nation is underway. The unemployment data due next week will be keenly evaluated for further insights on this front. Meanwhile, markets will closely monitor news flows emanating from overseas markets, especially the US, for deciphering the trend in currency markets in the last trading session of this week.