Dollar rally continues ahead of key labour report today

Enrique Díaz-Álvarez02/Jul/2015Currency Updates


The Pound dipped by 0.5% versus Greenback on Wednesday following weak growth data and another broad Dollar rally.

Manufacturing growth in the UK economy continued on its downward trend yesterday, edging closer to contraction, having recording its weakest expansion since April 2013. The latest Manufacturing PMI from Markit declined from 51.9 to 51.4 last month, inevitably driven lower by a strong value of the Pound and uncertainty surrounding the Greek debt crisis. Such weak data suggests that Britain’s economy will be even more reliant on its dominant services sector in order to deliver solid economic growth in the second quarter. Encouragingly, however, the report suggested that manufacturing employers were adding staff at the fastest rate in three months, a further bonus for Britain’s currently strong labour market.

Speaking at the Bank of England financial stability report, Governor Mark Carney allayed fears surrounding spill over effects from the Greek crisis, by claiming the central bank was prepared should the country exit from the Eurozone. Carney also said a low interest rate environment could remain for some time, although a Reuters poll yesterday suggested that rates would be hiked in Q1 2016, as is our long standing view.

In the UK this morning we’ll see housing price data from both Halifax and Nationwide, followed by construction growth from Markit at 9.30am.


Global markets continue to remain remarkably calm in the face of the Greek crisis. The Euro held its own for much of the day, although ended 0.4% lower versus the US Dollar.

Greece remained at the forefront of the news, a day after the country failed to make its IMF repayment deadline. Prime Minister Alexis Tsipras performed a U-turn on Wednesday, telling international creditors that the Greek government would accept their latest bailout offer, but only with certain conditions, of which included proposals on spending cuts and pensions.
The Greek government have asked, in exchange for this conditional acceptance, access to 29 billion Euros in funds in order to cover its debt payments over the next two years. However, German Chancellor Angela Merkel took another hard line, ruling out further negotiations before this weekend’s referendum. German Finance Minister Wolfgang Schaeuble poured more cold water over the hopes of an imminent deal, by claiming a lack of clarity from Greece meant there was “no basis” for serious negotiations at present.

Away from Greece, manufacturing growth accelerated in the Eurozone in June according to revised PMI’s, driven predominantly by expansion in Germany and France.

Attention today will continue to be on Greece ahead of the possible referendum on Saturday. The ECB will also be releasing its meeting accounts from the latest monetary policy meeting at 12.30pm London time.


The Dollar rally continued for a second day yesterday, with the US Dollar index climbing by 0.4%.

There was more encouraging labour data ahead of today’s payroll report, with US private employers adding 237,000 jobs in June, according to the ADP National Employment Report. This marked the largest monthly increase since December, and was comfortably above the 218,000 that was forecast by analysts. Such a strong number, including an upwards revision in May’s figure, provides further evidence that the Federal Reserve is on course for an interest rate hike this year, possibly September, in line with our forecast.

Elsewhere, manufacturing growth in the US improved strongly in June, with the ISM manufacturing index jumping from 52.8 to 53.8, fuelled by impressive new orders and a tailing off of lower oil prices. In other second-tier releases, mortgage applications declined by 4.7% last week, while the level of spending in the construction industry exceeded expectations at 0.8% MoM.

With the US observing a bank holiday on Friday due to Independence Day, the crucial monthly labour report will be released today, including the much anticipated nonfarm payroll figure. Markets are expecting a reading around the 230k mark, with any breakout figure outside the 200-260k range likely to cause sharp movement in the Dollar. The latest unemployment rate and average earning will, as always, be worth paying attention to when announced at 1.30pm BST.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.