Robust Labour Market Data Lifts the Dollar on Friday
What’s been happening?
Pound Sterling – UK Markets
Following Thursday impressive rally, the British pound failed to preserve its momentum on Friday and recorded modest losses against the dollar while staying relatively unchanged vs the euro. The data released by the IHS Markit showed that the business activity in the UK’s construction sector expanded at a more robust pace than expected in October with the PMI reading improving to 53.2 from 52.1 in September. Commenting on the report, “Although total UK construction activity rose at a stronger pace in October, the underlying survey data paint a less rosy picture for the sector towards the end of the year,” said Trevor Balchin, Economics Director at the IHS Markit.
On Brexit-related headlines, The Sunday Times over the weekend reported that the EU made a significant concession to let the whole of the UK to remain in the customs union. According to the publication, this agreement will allow the UK to avoid a hard-border on the Isle of Ireland but includes an “exit clause” to reveal that the solution is only temporary. Although a spokesperson for Downing Street said the report was mere speculation, the fact that ministers have not received an agenda for Tuesday’s Cabinet meeting suggests that there could be new developments surrounding Brexit negotiations.
US Dollar – US Markets
The U.S. Bureau of Labor Statistics on Friday reported that the total nonfarm payroll employment rose by 250,000 in October to beat the analysts’ estimate of 190,000. The BOL also announced that the unemployment rate stayed unchanged at 3.7% in the same period while annual wage inflation, as measured by the average hourly earnings, rose to 3.1% from 2.8%. Boosted by the upbeat labour market data and a decisive upsurge seen in the 10-year Treasury Bond yields, the US Dollar Index gained traction in the second half of the day to end the week on a positive note ahead of Tuesday’s critical midterm elections.
Other data from the U.S. showed that the international goods and services deficit expanded to $54.0 billion in September from $53.3 billion in August as imports increased more than exports in the period. Finally, the ISM NY said that the Curren Business Conditions index recorded its second consecutive drop in October. “In October, New York City purchasing managers reported yet another new high level of Employment while indicating lower Current Business Conditions and a lower Six-Month Outlook, according to the survey taken by the Institute for Supply Management-New York,” the publication read.
Euro – European Markets
The IHS Markit’s Manufacturing PMI report showed that the manufacturing sector both in the eurozone and Germany lost momentum in October. “Concerns about the Eurozone manufacturing sector intensified at the start of the fourth quarter. The headline PMI fell to its lowest since August 2016, signalling a further slowing in the rate of expansion,” Chris Williamson, Chief Business Economist at the IHS Markit, said. Commenting on Germany’s PMI reading, “A second consecutive monthly decline in export orders poured more cold water on the manufacturing sector in October, with PMI data indicating the worst overall growth performance for almost two-and-a-half years,” Phil Smith, Principal Economist at the IHS Markit, noted.
Later in the day, citing three sources familiar with talks, Reuters reported that the European Central Bank was considering introducing a new round of Targeted longer-term refinancing operations (TLTROs) to help banks avoid a possible “cliff edge” in 2020. Nonetheless, sources also made it clear that a decision on TLTROs was not expected at the December meeting. After rising to its highest level in a week against the greenback, the euro reversed its direction and recorded modest losses.
What’s coming up?
UK: The IHS Markit is scheduled to release the October PMI (final) report for the service sector.
US: Both the ISM and the IHS Markit will be releasing their respective Services PMI data on Monday.
EU: The only data featured in the European economic docket will be the Sentix Investor Confidence, which is expected to edge down to 10.1 in November from 11.3 recorded in October.