What’s been happening?

Pound Sterling – UK Markets 

The pound weakened against the dollar and the euro on Thursday as Bank of England Governor Mark Carney adopted a dovish tone regarding further rate hikes. Although markets have been pricing a rate hike since the start of the week, the unanimous decision of the BoE's nine rate-setters on the MPC was unexpected, and the initial market reaction lifted the pound against its rivals.

However, while delivering his remarks on the monetary policy outlook in a press conference, Carney stated that the policy “needs to walk, not run, to stand still,” and voiced his concerns over the uncertainty surrounding the Brexit negotiations. In an interview with the BBC later in the day, Carney further explained that one rate hike per year over the next few years would be appropriate and implied that a no-deal Brexit outcome could force them to change their strategy.

In line with Carney’s comment, “the MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal,” the BoE said in its latest Inflation report.

US Dollar – US Markets

According to the weekly report published by the US Labor Department, initial claims for state unemployment benefits increased 1,000 to a seasonally adjusted 218,000 for the week ended July 28. The ISM NY’s monthly publication showed that the business activity in manufacturing and non-manufacturing sectors the NY area expanded at a robust pace in July with the headline Business Conditions Index improving to 75 from 55 in June.

Meanwhile, the US Census Bureau announced that factory orders rose 0.7% in June from 0.4% in May to match the analysts’ estimate. Although this data points to strong domestic demand, rising input costs and the harmful effects of tariffs as revealed in the latest PMI reports suggest that the sector might struggle to preserve its momentum.

Nonetheless, the dollar outperformed its main rivals on Thursday and the US Dollar Index advanced above the 95 mark to touch its highest level in two weeks ahead of Friday’s unemployment report. 

Euro – European Markets

On Thursday, the Eurostat announced that the industrial producer prices rose by 0.4% from May to June in both the euro area (EA19) and the EU28. On a yearly basis, prices increased by 3.6% and 4.4% respectively. “The highest increases in industrial producer prices were recorded in Denmark (+9.1%), Belgium (+8.4%), the United Kingdom (+8.2%) and Estonia (+8.0%), while decreases were observed in Ireland (-2.6%) and Luxembourg (-1.5%),” Eurostat concluded. There were no other macroeconomic data releases from the eurozone, and the shared currency failed to grab the markets’ attention as investors stayed focused on the BoE and the broad-based dollar strength.   

What’s coming up? 

UK: Markit is going to publish the Services PMI in the UK, which is expected to edge down to 54.7 in the final reading of July from 55.1 in June. A lower-than-expected reading could put extra weight on the vulnerable pound’s shoulders.     

US: All attention on Friday will be on the employment report. Analysts expect nonfarm payrolls to increase by 190,000 in July following June’s strong 213,000 reading. The unemployment rate, which ticked up to 4% on higher labor force participation rate in June, is expected to ease to 3.9% in July. The wage inflation measured by the average hourly earnings is seen staying unchanged at an annual growth rate of 2.7%.

The ISM and Markit will release the non-manufacturing PMI figures in the U.S. as well.   

EU: The Eurostat will publish the July retail sales number in the eurozone. Services & Composite PMI from Markit will also be featured on the European economic docket on Friday.