News & Analysis

USD

The greenback drifted higher to start the new week as markets continued to digest Friday’s August jobs numbers. This saw the broad dollar rallied almost half a percent by the end of Monday trading, reversing much of the grind lower seen over the course of last week. As we wrote yesterday morning, however, we think it will need a steer from Chair Powell following next week’s FOMC meeting for the dollar to make more sustained gains. Granted, CPI tomorrow could add some upside impetus, but the focus for the Fed, and markets, is now squarely on the employment side of the Fed’s dual mandate. We will be keeping a close eye on this morning’s NFIB data with this in mind – with the release having proven a good leading indicator for payrolls resilience in recent years. A further rebound would add to our confidence that the US labour market is not about to roll over, favouring a modest pace of Fed easing and a retracement higher for the dollar. That all being said, a Presidential debate later tonight is likely to steal the headlines. While we continue to think the election should be of only minimal consequence for markets this far out from polling day, and with the race neck-and-neck, a crushing victory for either Harris or Trump could begin to impact markets, with two-sided risks for the dollar.

EUR

While the ECB is clearly the main eurozone focus later this week, until then euro traders are having to content themselves with parsing a series of second and third tier data releases, alongside whatever political commentary happens to hit the wires. On this point, an intervention from Mario Draghi certainly caught our attention on Monday. The former ECB chief laid out in stark terms the challenges facing the eurozone, and some potential solutions. While we agree on diagnosis, this gives us cold comfort. Given the sclerotic nature of European political decision-making, not to mention a recent hollowing out of the political centre across the bloc, means we struggle to see how the necessary reforms can be implemented. Against this backdrop, the economic outlook for the eurozone continues to looks grim, a dynamic that underpins our own long-run bearishness on the euro relative to many other G10 currencies.

GBP

UK wage data, published 07:00 BST this morning, offered little steer for markets ahead of the BoE’s next policy decision on September 19th. Average weekly earnings growth cooled to 4.0% on a 3m/YoY, while weekly earnings growth ex-bonus fell 0.3pp to 5.1%. With both readings landing broadly in line with consensus, Bank Rate expectations are little moved, as is the pound, up just a tenth against both the euro and the dollar in early trading. Later today, a speech by BoE Deputy Governor Sarah Breeden should be the highlight for sterling traders, and potentially more impactful for traders. Having only recently joined the MPC, Breeden’s views on monetary policy remain a mystery to markets. What is known is that she voted for a cut in July, making her one of three swing voters on the MPC. Considering this, any dovish signals later today could sway market expectations that currently only see a 20% chance that the BoE cuts rates later this month – an outcome that would likely see a sharp retracement lower for sterling, if realised.

CAD

The loonie outperformed on Monday, holding ground against the dollar even as other G10 FX started the week in retreat. That said, the lack of movement for USDCAD was not a surprise considering the lack of market-moving events in either the US or Canada. Indeed, a series of second and third-tier data should keep loonie traders focused on the US as the week goes on, a dynamic that should see a slow grind higher for the pair all things being equal, before next week’s Fed meeting comes into scope.

 

 

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