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Greenback Dips On Mixed Payroll Data Causing Dovish Fed

Currency-Market-Update-Monday-3
Albert Edwards
by Albert Edwards on September 09, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD defensive after the recent jobs report confirmed slow expansion and increased chances of more interest rate cuts from the Federal Reserve. Private and public employers hired only 130K workers in July (lower than expected 158K) and hourly wages improved 0.4% (versus 0.3% expected); meanwhile, the unemployment rate remained at 3.7%. Uncertainties regarding trade with China, fears of a global economic slowdown and negative Treasury yields are the main factors weighing on USD. However, risk appetite returned after trade talks will resume next month and stocks climbed higher after a new Chinese stimulus plan helped ease market concern. Federal Reserve Chairman Jerome Powell said the central bank would “act as appropriate” to sustain economic expansion. Markets are pricing in another 25bps decrease at the next FOMC meeting (September 17-18).

Canadian dollar highlights:

CAD stronger after larger than expected jobs gains last month reduced the chances for an interest rate cut from the Bank of Canada. The unemployment rate remained at 5.7% and the economy added 81,100 jobs in August (mostly due to part-time employment and higher than expected 15K increase); meanwhile, the U.S. added fewer workers than expected. CAD is also supported by higher oil prices after dovish statements from the Fed. Markets will focus on U.S.-China trade developments and oil prices for CAD direction this week.

Euro highlights:

EUR tumbles after Q2 GDP was 0.2% quarterly (as expected) and Germany’s economy shrank. Manufacturers are struggling in the Eurozone’s biggest economy as trade slowed and Germany’s industrial output in July dropped. Chancellor Angela Merkel said they are open for Chinese investment and recession fears continue weighing on the EUR. All eyes on the European Central Bank Interest Rate Decision and press conference on Thursday.

British pound highlights:

GBP plunged after the opposition parties plan to respond to Prime Minister Johnson’s decision to call a snap election. Johnson said he would not delay the planned departure from the European Union on October 31st, and this has increased market fears of a no-deal Brexit. Lawmakers voted last week to block a no-deal Brexit (approved by the House of Lords) and forced Johnson to consider another delay. An early general election will affect GBP lower with the Conservatives vulnerable to lose more seats. Johnson refuses to resign and hopes to win elections on October 15, then change the law to allow for a hard Brexit. Political uncertainty and no-deal Brexit concerns will be the focus for GBP direction.

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