Dollar dips on disappointing data

October 5th: Highlights

• Compare/Contrast Service PMI data
• UK PMI
• Eurozone PMI
• US PMI

Sterling Comment

The weak Non-Farm figures from the US on Friday resulted in Cable opening higher this morning. Domestically, Sterling was helped by positive PMI construction figures for September, which rose more than forecast to a 7-mth high of 59.9 (57.3 previously), showing an improvement in sentiment and adding to the end-of-week rally on Friday.

Today Services PMI will be the main focus (forecast to rise to 56.4) as the Service sector packs more punch than Construction. There will be another compare/contrast opportunity as we see PMI service data released from Europe, before the US non-manufacturing PMI is released later today. Amid the improved market sentiment it will be interesting to see if bad news is still good for markets.

The BoE will release the latest interest rate decision on Thursday. Governor Mark Carney and the MPC will be weighing up some fairly solid UK data against the global economic developments, which have contributed to the Fed sitting on its hands.

Global Comment

Non-Farms Payroll data always has the capacity to cause volatility and Friday’s poor reading is no different, when a poor data release, showing a rise of 142k Vs. forecast of 203k, led to a USD sell-off. This leaves the market to question how things stack up for the Fed now and the initial reaction seems to be that this has killed off any chance of a rate hike in October.

The week ahead could be busy for USD, with various US Federal Reserve members speaking ahead of the Fed minutes, due out on Thursday. The market will be listening for any clues over how the Non-Farms may have affected the Fed’s considerations and current outlook. PMI data today is expected to show continued growth and the weekly unemployment claims on Thursday should be stable.

The bad news for the USD was a boost for the commodity-oriented and emerging-market currencies, as they should continue to benefit from cheap money while the Fed holds off on any rate movement. The main beneficiary from this move was the ZAR, driven higher by about 1.25%.

Tonight will report Australia’s balance of trade and New Zealand business confidence. The RBA is expected rates on hold when it makes its announcement overnight.

The good run that JPY has seen in September may be tested this week when the BoJ meet. Most forecasts are for no change on interest rates or their massive QE programme, however there is a chance that they may signal the potential for more money-printing after the inflation rate fell below zero in August for the first time since 2013.

Have a great day!