The Dollar in Focus with One Eye on the Pound

Following a busy Tuesday, the markets will have some time to digest Tuesday’s data, with stats on the lighter side out of Europe and the U.S today.

The Dollar had managed to stop the rot on Tuesday, having fallen to a 15-month low this week, though the gains on Tuesday were certainly not convincing, with macroeconomic data out of the U.S on Tuesday, which included June inflation and manufacturing PMI figures for July generally disappointing the markets, the numbers unlikely to place any immediate pressure on the FED to make a move, with the markets continuing to speculate on whether there will be a final rate hike at the end of the year.

The probability of a December rate hike sits at 47% at the time of the report, easing from 50% prior to Tuesday’s figures, with September now off the table.

Following the uptick in the Eurozone economy and July manufacturing sector PMI figures, monetary policy continues to favour the EUR, as the FED doves look to fight off a 3^rd rate hike this year and the ECB well behind the FED in terms of a move towards normalization.

Macroeconomic data out of the Eurozone this morning will unlikely have a material impact on the EUR, with stats limited to Spain’s unemployment change numbers, with the big stat of the day being this afternoon’s July ADP nonfarm employment change figures.

Forecasts are for a 188k increase, following June’s 158k, which will be considered Dollar positive, but with wage growth having become the greater concern as inflation lags, any upside through the afternoon will likely be limited ahead of Friday’s figures, divergence between the two sets of data also common.

There’s been plenty of talk over the negative effects of Capitol Hill noise on the Dollar and there have certainly been some clear moves in the Dollar upon noise hitting the wires, but one does wonder whether the Dollar would be so sensitive if the U.S economy was performing at the levels that had been hoped for going into the New Year. Lacklustre growth has led to the markets placing more emphasis on growth policies to drive U.S monetary policy to normalization at a more aggressive pace, the issues faced by the U.S administration not only a distraction from delivering on growth policies, but also weighing on in-house support for the U.S president.

Before Trump has any intentions on attempting to deliver tax reforms for a fiscal stimulus package, the U.S President will need to bring the Republican Party together and that may be the greater challenge than finding the funds to deliver, which suggests that the Dollar is a long way from a recovery from this year’s woes, solid data or not.

Across the pond, macroeconomic data out of the UK this morning is limited to July’s construction PMI numbers, with all eyes on tomorrow’s MPC monetary policy decision, BoE MPC monetary policy meeting minutes and Carney Press Conference. Tuesday’s pickup in manufacturing activity will be a plus, but the BoE will also need to be convinced that inflation pressures are likely to persist, with tomorrow’s service sector PMI needing to also show some upside ahead of the MPC Decision and press conference.

At the time of the report, the Dollar Spot Index was down 0.02% at 93.024, with the EUR up 0.17% at $1.1822, while the pound was up 0.06% at $1.3211 ahead of today’s figures, cable recovering early losses going into the European session.

It’s for the Dollar to lose today and it comes down to the ADP figure this afternoon and there will be more than the Dollar Bulls looking for positive numbers through the rest of the week, with the weaker Dollar complication monetary policy discussions for the RBA and the ECB, both economies continuing to be reliant on favourable trade terms for economic growth.