Dollar Rebounds Ahead of Nonfarm Payrolls Data
What’s been happening?
Pound Sterling – UK Markets
The British pound erased the majority of the gains it recorded against the dollar since the start of the week and weakened vs the euro as well. In the absence of macroeconomic data releases from the UK, markets stayed focused on political developments in the UK.
Earlier in the day, the European Union's Chief Brexit Negotiator, Michel Barnier, said that they could allow a Brexit delay until 22 of May but added that it was up to EU leaders to grant it. Meanwhile, negotiation teams of Prime Minister May and Labour party met for hours today but none of the headlines suggested that they were moving closer to a deal that can be supported by the opposition party. Further talks are expected to take place on Friday. Additionally, the government announced that James Cleverly, Member of Parliament for Braintree and Deputy Chairman of the Conservative Party, has been appointed as the new Junior Brexit Minister.
US Dollar – US Markets
The US Dollar Index, which tracks the dollar’s value against a basket of six major currencies, recovered Wednesday’s losses as the sour market mood helped the currency find demand as a safe-haven. Additionally, the upbeat data and hawkish Fed commentary helped the pair outperform its rivals. The data published by the U.S. Bureau of Labor Statistics revealed that initial weekly jobless claims fell to its lowest level since December of 1969 at 202K.
While speaking to reporters after delivering her prepared speech at a banking regulation event in Columbus, Ohio, Cleveland Fed President Loretta Mester she was biased to either keeping rates where they are or moving them up a little bit. “If my likely outcome comes to pass then I think rates might have to go up a bit from where they are. But as you know the economy could evolve in a different way than I’m expecting as my most likely outcome,” Reuters quoted Mester saying.
Euro – European Markets
The shared currency lost strength on Thursday as the latest data reminded investors of the economic slowdown in the eurozone. Germany’s Destatis reported that factory orders in Germany contracted by 4.2% on a monthly basis in February following January’s 2.1% decline and missed the market expectation for an increase of 0.3% by a wide margin.
Later in the day, the European Central Bank published the minutes of its March meeting, which noted that the persistence of uncertainties continued to weigh on the growth outlook. “In considering the outlook and risks for the external environment, members took note of the further slowdown in global growth and trade momentum,” the ECB said in its publication. “There were concerns about the potential impact of trade protectionism on the global outlook and the ongoing risk of an escalation of trade conflicts.”
What’s coming up?
UK: There won’t be any macroeconomic data releases from the UK on Friday and markets will remain focused on political developments and headlines surrounding Brexit talks.
US: The nonfarm payrolls report, which will include unemployment rate, average hourly earnings, and labor force participation rate, will be watched closely by market participants. Analysts expect the NFP to increase by 180K in March following February’s dismal 20K reading.
EU: In the absence of macroeconomic data releases from the euro area, markets will be looking for headlines coming out of the Eurogroup meeting on Friday.