Good Morning All;
a new Daily Currency Update.
EUR / USD
US non-farm payrolls rose 151,000 for August compared with expectations of an increase of around 180,000, although there was upward July revision to 275,000 from 255,000 previously. Unemployment held at 4.9% compared with an expected small decline to 4.8% while the average earnings increase was 0.1% for the month and 2.4% over the year. The dollar weakened in an initial reaction as expectations of a near-term Federal Reserve tightening declined, although there was a significant reversal later in the session given that the increase in employment growth could still be sufficient to trigger a Fed move given their underlying concerns surrounding a very tight labour market. Futures markets still priced in only around a 20% chance of a September move. US trade data was better than expected with exports rising to the strongest level for 10 months. The Euro strengthened to highs close to 1.1250 following the US data before retreating towards 1.1150. Richmond Fed President Lacker maintained a hawkish overall stance with comments that US interest rates should be substantially higher than current levels, although he also stated that he had not decided on his stance for the September meeting. The latest CFTC positioning data recorded a decline to 8-week lows in non-commercial long positions, although there was an increase in the net short Euro positioning, limiting the potential for further losses. The Euro edged higher on Monday, although there were some German political concerns with exit polls suggesting Merkel’s CDU party was in third place in Mecklenburg-Vorpommern state elections, behind the SPD and AfD anti-immigration party
JPY The dollar weakened to lows just below 103.00 following the latest US employment data before rallying to highs above 104.00 later in the US session. The US currency recovered ground generally and the yen was also more on the defensive. The latest data recorded an increase in long yen positions in the latest week, maintaining the potential for a squeeze if there are stronger expectations of further Bank of Japan easing. In a speech on Monday, Bank of Japan Governor Kuroda insisted that the bank would not withdraw easing at this week’s policy review and that the bank was ready to ease monetary policy further through existing or new tools. There were, however, no references to specific policies and warned over the limits to easing which dampened yen selling. Japanese earnings data was stronger than expected with the annual increase holding at 1.4% in the year to July which will help support sentiment. So far, there have been no substantive yen comments at the G20 Summit and the dollar dipped to below 103.50.
GBP There was a significant improvement in the UK construction PMI index to 49.2 for August from 45.9 previously with all sectors showing evidence of a stabilisation in orders. Sterling rallied, although the impact was less than on Thursday. There was some short covering while higher oil prices also provided some net support and the Euro again dipped below the 0.8400 level. Sterling rallied again the US payrolls data, but was unable to hold one-month highs above the 1.3300 level against the dollar. Following on from the stronger than expected manufacturing and construction data, there will greater confidence in the outlook. Monday’s services PMI data will be very important for underlying sentiment and potential monetary policy developments. Comments from Bank of England Governor Carney and other MPC members will be watched very closely in testimony to the Treasury Select Committee on Wednesday as Sterling held above 1.3300 against the dollar on Monday.
The Euro was unable to make a fresh attempt on testing the 1.1000 area against the franc on Friday and retreated to below 1.0950 with the dollar also unable to make any headway and dipping below
the 0.9800 level. The Swiss currency held firm despite rising equity markets following the US employment data. Swiss National Bank member Zurbruegg stated that the negative interest rate policy was necessary and is working.
There will be further speculation that the bank will resist any significant franc strengthening, especially with underlying growth doubts.