Can Nonfarm Payrolls Save the Dollar?

The markets will be thanking BoE Governor Carney and Chief Economist Haldane for the forward guidance on monetary policy just a few weeks ago, with both deciding to take the more cautious approach in policy and stand firm, whilst McCafferty and Saunders continued to vote in favour of a reversal to last year’s easing, their partner in crime, Kristin Forbes, having already parted ways with the Committee. Perhaps the bigger U-turn from Carney’s perspective is the Committee’s projections on growth and interest rates, with the Committee pointing to a slowdown in the UK economy and no rate hikes until the 3^rd quarter of next year, quite a shift from an imminent move, or so we thought.

While the BoE may be hiding behind Brexit for the disappointing growth in the 2^nd quarter and forecasted weakness in the quarters ahead, one does need to wonder whether monetary policy contributed to the doom and gloom, with the inflation overshoot hitting domestic consumption hard and the weaker pound not having as much of a positive impact on trade terms as had initially been anticipated.

It’s hard to see the pound recover from yesterday’s losses over the near-term, the only support this week having come from better than forecasted manufacturing and service sector PMI figures for July, which may provide a glimmer of hope for the Sterling supporters. After all, the BoE has been wrong before…

Across the pond, the Dollar has also seen better days, with Thursday’s demise coming off the back of news that Robert Mueller has put together a grand jury, as he continues to investigate into possible collusion between the Russians and the U.S administration during the U.S Presidential Campaign. Someone is about to be dragged over the hot coals, the only question being how high up in the administration do they sit…

In contrast to other days this week, the Asian markets were less forgiving on the Dollar early in the day, with the Dollar Spot Index spending the session in the red, as the markets look ahead to this afternoon’s wage growth and nonfarm payrolls figures. Following the softer than expected ADP numbers, it’s anyone’s guess on which way the numbers will go, with July ISM Survey Employment sub-index figures released this week suggesting a slower pace of hiring through the month. While payrolls will be important, including any revisions to June numbers, expect wage growth to be the center of attention.

There will are no material stats out of the Eurozone to distract the markets, following this morning’s June factory order numbers out of Germany, so other than noise from Capitol Hill, today’s stats out of the U.S will be the key driver through the European and U.S session.

Central banks will be hoping for some good news out of the U.S, with the weaker Dollar continuing to complicate matters, weighing on hopes of a shift in monetary policy over the near-term. We’ve yet to hear the media press on the U.S President on the direction of the Dollar, which has been on the back foot for all the wrong reasons and it would certainly be interesting to hear the President’s spin, as not even he could have forecasted such a prolonged investigation into the administration, which has also drawn the U.S president in.

At the time of the report, the Dollar Spot Index was down 0.06% at 92.787, with the pound flat against the Dollar, as the markets consider what’s to come, with both likely to struggle through the day. One thing is certain, there won’t be any talk of parity for a while…