All Eyes on US Employment Report Today
Currency traders are bracing themselves for the latest US nonfarm payrolls report scheduled later in the day amid ongoing uncertainty about whether the FOMC will raise its benchmark interest rate at its upcoming monetary policy meeting. Today’s US employment report will be particularly eyed considering the conflicting cues from policymakers about a rate rise at the September meeting of the Fed.
In Europe, the ECB downgraded its growth and inflation forecasts which led the common currency to weaken against a basket of currencies yesterday. In today’s economic news, German factory orders fell more than expected in July, sparking concerns about easing of growth in the Euro zone’s largest economy. In the UK, the domestic economic calendar is light today.
Pound Sterling – UK Markets
The Pound is trading lower against its major currency counterparts this morning, amid the absence of any significant macroeconomic indicators in the UK today to influence trading in the domestic currency. Sterling investors are expected to remain on sidelines today, as spotlight will be on the highly anticipated non-farm payrolls numbers in the US due later in the day. Looking ahead to next week’s UK economic calendar, currency traders will remain on toes with the Bank of England’s interest rate decision and NIESR’s GDP estimate for the three months until August, scheduled later next week, for further cues on whether the BoE will tighten its policy at the turn of next year. Also of particular investor interest would be UK central bank’s consumer inflation expectations report due in the final session of next week, with lower oil prices and strong Pound weighing on the near term inflation outlook.
Sterling traded in a close range against the US Dollar yesterday after a survey report showed that activity in Britain’s services sector experienced its weakest activity in more than two years for August, thus dampening optimism about the health of the economy.
US Dollar – US Markets
The US Dollar is range bound against the Pound this morning, ahead of the eagerly awaited US non-farm payrolls report today which is a likely to be a key indicator for the Fed in determining the timing of its first interest rate rise since 2006. The Department of Labor is expected to report that the US economy added more jobs in August compared to the previous month and that the unemployment rate ticked down to 5.2%. Lately, some US Fed officials have been quite hawkish in their views about raising the benchmark interest rate. The Fed Vice Chairman, Stanley Fischer, yesterday fuelled doubts among investors that the US central bank was ready to raise interest rates in the upcoming policy meeting. However, the IMF this week issued a warning that recent market volatility, triggered by concerns surrounding China, is likely to be a drag on global economic growth and cautioned against premature policy tightening. Nevertheless, investor focus will be on today’s US jobs report which might trigger volatility in the greenback against the majors.
Yesterday, the US Dollar gained ground against the Euro after the release of the upbeat ISM non-manufacturing PMI reading in the US.
Euro – European Markets
The shared currency has shown little reaction and remained supported against the major currencies this morning. Economic data released earlier in the day revealed that German factory orders, adjusted for seasonal swings and inflation, dropped more than market projections for July, as demand from outside the currency union slumped during the period. The fall in export orders, triggered by a slowdown in Germany’s major trading partner nations, suggests that local manufacturers might have to be more reliant on domestic demand to spur growth in its economy.
Meanwhile, the ECB Chief warned about lower growth and a weak inflation outlook for the Euro zone, citing a weaker expansion in China and other emerging market economies. At a press conference yesterday, the ECB President, Mario Draghi, left the door open to extend and expand its asset buying program beyond its original deadline of September 2016 and left its interest rate unchanged at record lows as widely expected. The dovish tone of ECB President’s comments coerced the Euro lower against its key peers yesterday.
Other Currencies – Highlights
The Canadian Dollar moved higher against the greenback yesterday after data showed that Canada’s trade deficit surprisingly narrowed for July as the export sector posted healthy growth for the second consecutive month. This has lowered the probability of the Bank of Canada reducing its benchmark interest rate for the third time this year at its monetary policy meeting scheduled this month. Additionally, stable crude oil prices and the ECB’s indication to provide further stimulus measures to the Euro zone economy, if needed, provided further support to the Loonie against its major counterparts.
Today, the Canadian Dollar has weakened marginally against the US Dollar amid higher risk aversion amongst investors ahead of the closely watched US non-farm payrolls data due later today. Additionally, the Canadian jobs reports will be closely eyed by domestic investors which is expected to show that the number of employed people in the nation dropped for August. It would also be interesting to keep an eye on crude oil prices once the Chinese markets re-open on Monday, especially considering the correlation between the Canadian Dollar and oil prices.