Businesses prepare for volatility around this afternoon’s US labour report
01/Apr/2016 • Currency Updates•
The US Dollar and Sterling both remained under pressure yesterday, ending the first quarter of the year as two of the worst performing major currencies in the world.
The Dollar hit its lowest level in five months against its basket of currencies, suffering its worst quarterly performance in over five years, while the Pound posted its biggest quarterly percentage loss in trade-weighted terms since 2008.
Federal Reserve Chair Janet Yellen’s comments earlier in the week have weighed on the Greenback in the past few days, with investors continuing to push back expectations for the next Fed interest rate hike.
Meanwhile, concerns surrounding a possible Brexit in June have sent Sterling lower, despite an upward revision in UK GDP growth yesterday. Economic growth for the fourth quarter in the UK was revised upwards from the initial 0.5% estimate to 0.6%.
In the Eurozone, there were tentative signs of a modest return of inflation. Core consumer price growth accelerated to 1% in the year to March, suggesting that February’s multi-month low may have been a temporary blip. However, with headline inflation remaining in negative territory, further easing from the European Central Bank remains a real possibility over the coming months.
This week’s main event will be this afternoon’s labour report in the US, including the monthly nonfarm payrolls release, which is generally considered the biggest market moving economic data point of the month. Job creation is again expected to exceed the 200,000 level, with any number in excess of this likely to provide some support for the US Dollar today.
It will, however, take a significant positive surprise to bring the prospect of an April Fed rate hike back into play, with markets now almost completely discounting this as a possibility following dovish comments from Janet Yellen earlier in the week.
Major currencies in detail:
Sterling rose by 0.1% against a weak US Dollar on Thursday, although dipped again versus the Euro.
The UK economy received a boost yesterday after growth in the fourth quarter of last year was unexpectedly revised upwards. Growth of 0.6% resulted in the economy growing by 2.3% for the whole of 2015, rather than the 2.2% that was originally quoted. This remains among the highest growth rates in the G10.
Meanwhile, in a worrying development, the current account deficit widened to a record high level in Q4 to 7% of GDP, largely due to a fall in direct investments from abroad.
The monthly manufacturing PMI this morning will be the only major release in the UK today in an otherwise quiet end to the week.
Another weak performance for the US Dollar allowed the Euro to end the London trading session 0.4% higher against the Greenback.
Inflation figures in the Eurozone yesterday continued to ramp up pressure on the European Central Bank to increase stimulus measures. Headline inflation fell by 0.1% in the year to March, its second straight month of negative price growth.
Earlier in the session, unemployment in Germany failed to show any improvement in both real and percentage terms. The jobless rate remained at its record low 6.2%, well below the Eurozone average.
This morning Euro-wide unemployment is expected to remain unchanged at 10.3%. Any surprises in the PMI’s could also prove a market mover for the Euro today.
The US Dollar index fell by 0.3% on Thursday, extending the decline this month as investors continue to push back their expectation for the next interest rate hike by the Federal Reserve.
Ahead of today’s key labour report, initial jobless claims increased last week, rising by 11,000 to 276,000. While disappointing expectations, claims remain below the level associated with a strong labour market and have been below the threshold 300,000 level for the past 55 weeks, its longest stretch since 1973.
This improvement in labour market conditions should allow the Fed to hike rates twice this year and we believe this will cause the US Dollar’s upward trend against almost every major currency to recommence.
This afternoon’s labour report at 13:30 UK time will be the highlight today, with nonfarm payrolls, the unemployment rate and average earnings all worth noting.
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