The US Dollar Slips on Disappointing Data
What’s been happening?
Pound Sterling – UK Markets
The British pound recorded modest gains vs both the dollar and the euro on Thursday. However, the fact that there were no fundamental developments supporting the sterling’s price action during the day suggests that the recovery is likely to remain shallow and the currency is still vulnerable to Brexit headlines ahead of next week’s vote.
Speaking to reporters earlier in the day, Northern Irish Democratic Unionist Party (DUP) member Sammy Wilson reiterated that the party will be voting against Prime Minister May’s Brexit deal. Meanwhile, in an interview with BBC Radio 4, Theresa May explained that it was the government’s duty to deliver the Brexit and added that the primary risk they were facing was “no Brexit at all.” Additionally, British Brexit Secretary Barclay said that the UK government position was that Article 50 won’t be reopened. Later in the day, citing a Number 10 aide, BuzzFeed News reported that Theresa May’s team had discussed the possibility of a second Referendum or a soft-Brexit if her deal was voted down in the Parliament.
US Dollar – US Markets
The greenback weakened against its rivals in the second half of the day following the disappointing macroeconomic data releases. The ADP on Thursday reported that the private sector employment in the United States increased by 179,000 jobs from October to November to miss the market forecast of 195,000. Commenting on the report, “Job growth is strong, but has likely peaked. This month’s report is free of significant weather effects and suggests slowing underlying job creation. With very tight labour markets, and record unfilled positions, businesses will have an increasingly tough time adding to payrolls,” said Mark Zandi, chief economist of Moody’s Analytics. Other data from the U.S. revealed that the trade deficit rose to its highest level in nearly a decade at $55.5 billion in October while unit labour costs in the third quarter rose 0.9% to fall short of the analysts’ estimate of 1.2%.
Earlier in the day, in an interview with CNBC, Dallas Fed President Robert Kaplan argued that the Fed needed to be cautious and patient with the policy. “We are a little below neutral policy rate,” Kaplan added. “If there is a slowdown in the global growth, then the U.S. will not be immune.”
Meanwhile, the IHS Markit’s Services PMI in November came in at 54.7 to suggest that the business activity in the sector continued to expand at a healthy pace. Commenting on the data, “The PMI surveys paint a picture of an economy growing at a solid annual rate of 2.5% so far in the fourth quarter, and continuing to add jobs in impressive numbers,” Chris Williamson, Chief Business Economist at IHS Markit noted. Similarly, the ISM’s non-manufacturing PMI improved to 60.7 in November from 60.3 in October.
Euro – European Markets
The euro rose against the dollar on Thursday but that move was a product of a greenback weakness rather than the euro strength. Ahead of tomorrow’s vote in the lower house of the Italian Parliament, Italian news outlets on Thursday reported that Prime Minister Conte was expected to present the revised budget to the EU’s Juncker on Tuesday and a revision to 2020 - 2021 budget deficit targets was expected. Touching on the subject, the European affairs minister Pierre Moscovici said that said that the real dialogue with Italy had commenced. “We are on the correct path on Italy budget talks and must continue to ensure progress, he added further,” Moscovicci added.
What’s coming up?
UK: The Bank of Englan will release the consumer expectations report on Friday.
US: The nonfarm payroll report, which includes average hourly earnings, unemployment rate, and labour force participation rate, will be featured in the U.S. economic docket.
EU: On Friday, the Eurostat will publish the third quarter GDP growth and the employment change data.