Dollar lower on soft US jobs data
Friday’s employment report in the US was weaker than expected – the economy shed almost 25k jobs in July – prompting some paring back of the chances for a Fed interest rate hike next month (to just under 50%) and a modest fall in the dollar. The euro and sterling traded up to intra-day highs of about $1.1580 and $1.3510 against the US currency respectively, but are back to around $1.1555 and $1.3490 this morning. EURGBP was confined to a very tight range last week and kicks off this week at about £0.8565. The focus for the week ahead will be on Wednesday’s CPI report in the US. A reading along the lines expected – a relatively subdued increase in core consumer prices of 0.2% on the month – or weaker would probably see market expectations for a September rate hike pared back further and the dollar lose ground, while a stronger than forecast reading would produce the opposite effects. The market will also be watching developments in relation to the reopening of the Strait of Hormuz, with an agreement between Iran and the US still proving elusive. Oil prices are nudging higher this morning with Brent crude at around $84 p/b.
US government bonds edged lower on the back of the jobs data, falling by around 3-5bps across the curve, while German and UK bonds ended flat to very marginally lower on the day. In equity markets, the S&P 500 closed out the week at a new all-time high, on the back of gains of just over half a percent on Friday, as did the Stoxx Europe 600, with gains of just shy of 0.5%.
Friday’s US payrolls report was a good deal weaker than expected. Employment fell by 23k in July – versus the consensus forecast for a gain of circa 80k – and the May-June outturn was revised down by a cumulative 103k. A decline in government employment dragged down overall employment last month, but the increase in private sector payrolls of 30k also fell shy of expectations. The unemployment rate declined for a second consecutive month, to 4.1%, but this was mainly due to another fall in the labour force participation rate.
For the week ahead, as well as Wednesday’s CPI report, other US economic data due include producer prices on Thursday and retail sales and consumer confidence on Friday. UK data scheduled includes GDP for Q2 on Thursday, while a second estimate of Euro area Q2 GDP growth is published on Friday.