Weekly currency news: dollar bounces up on bright U.S payrolls data
The dollar posted a strong recovery on Friday, bolstered by a better than expected July’s non-farm payrolls report and comments by Gary Cohn, director of the National Economic Council, who defended cutting the U.S. corporate tax, from the current 35% to 24%.
U.S. economy created 209,000 new jobs in July, well above the 185,000 expected by the analysts, and the unemployment rate declined to 4.3%, its lowest level since March 2001. These figures have restored confidence in the economy, and improved sentiment on the dollar, battered by a string of downbeat macroeconomic figures last week.
On Thursday, the Bank of England left interest rates unchanged and cut growth forecasts for this year and the next. Furthermore, Governor Carney’s rhetoric, sensibly more dovish than in previous weeks, disappointed investors that reacted with widespread pound sales.
This week we have a very quiet summer calendar with U.S. Consumer Prices Index and the UK industrial production as the most relevant events.
Currencies last week
- EUR/USD: pulls back from 30-month highs at 1.1900
- GBP/USD: dives from 1.3270 highs after BoE
- EUR/GBP: at 9-month highs above 0.9000
- USD/JPY: tests support at 110.00
Main events this week:
The U.S calendar opens with on Wednesday with the Q2 labour costs and non-farm productivity, which will give some insight on the trends of inflation and business health and, in absence of more relevant indicators might have an impact on the dollar.
On Friday, investors will be attentive to the U.S. Consumer Prices Index. Inflation has been falling over the last months adding concerns for the Fed about the need for the third interest rate hike planned for 2017 and therefore, weighing on the dollar. In this context, another downbeat CPI reading might increase dollar weakness.
In the Eurozone calendar, the only event worth mentioning would be the German Trade Balance, which is due on Tuesday and might have a minor impact on the euro.
In the UK on Thursday, National Statistics will release June’s manufacturing production figures. Factory output has contracted in four of the last five months and has been one of the reasons behind the deterioration of UK GDP growth expectations. Another negative reading might increase negative pressure on the pound.
On Tuesday, the Eco Watchers survey, an analysis of the Japanese short-term economic trends. Positive readings on these indexes would increase confidence in the Japanese economy and might have a positive impact on the yen and vice versa.
On Wednesday, the machinery orders will show the trends of the Japanese manufacturing sector. Machinery orders have posted sharp declines over the last two months, thus another downbeat reading in June might increase negative pressure on the yen.