Cracks finally began to show in the broad dollar strength seen recently over the course of the last week, with the greenback losing ground to most of the G10 currencies after a duo of poor domestic business surveys. Together the ISM Manufacturing and Non-Manufacturing indices suggested the US economy had slowed significantly, with the US-China trade war among the most prominent drivers. Friday saw the release of September’s Non-Farm Payrolls report, and although job creation was less than expected at 136,000, the report was not as bad as the week’s survey data suggested it may be, while the Unemployment Rate was the joint lowest since 1969. A number of crucial events are in the calendar for the dollar this week, including the NFIB Small Business Index tomorrow, and the Federal Reserve’s latest meeting minutes on Wednesday. Chinese officials will be in Washington on Thursday for high-level trade talks, ahead of the threatened increase in US Tariffs on Chinese goods on October 15th.
Sterling sat relatively flat in a tumultuous week for the G10 as expectations of Fed rate cuts were repriced. The Brexit headlines showed a willingness by Johnson’s government to seek a deal prior to the Benn act kicking in requiring an extension, but the proposed deal which would see borders in one shape or form in Ireland and the Irish sea was quickly refuted by EU officials. Over the weekend, the Telegraph reported that the PM is prepared to launch legal action at the Supreme Court to avoid having to seek an extension with the EU as outlined in the Benn act. However, the Mail on Sunday reported that Attorney General Geoffrey Cox would resign rather than see the government flout the law. With all options still firmly on the table, sterling is trading in neutral territory. The lack of a definitive trend in GBPUSD is telling as the Brexit clock ticks down. Parliament are set to sit today and tomorrow before they are prorogued again. On the data calendar, the BRC sales monitor is released tomorrow in the first minute of the British day, with August GDP data set to be released on Thursday.
Last week saw more negative surprises in Eurozone data, but the downturn came as no shock to markets as it continues the theme of a Eurozone-wide economic slowdown. However, the downturn in US survey indices prompted broad USD weakness which propped up EURUSD in the back end of the week. Ultimately the pair gained 0.35% despite threats of US tariffs in response to the WTO Airbus ruling. This week, ECB meeting minutes are released on Thursday. Market participants are likely to get further insight into the historic meeting where President Draghi resumed QE and cut rates 10 basis points further into negative territory with the addition of tiering. The euro still sits close to 2-year lows despite a minor rally last week. This morning saw German factory order data surprise to the downside, following suit with the Eurozone wide industrial slowdown and the likely recession in the German economy. The euro has weathered the data and trades flat this morning ahead of the Eurozone Sentix Investor Confidence release at 0930 BST.
As manufacturing indices fell across major economies last week, oil markets took a hit as demand concerns re-emerged and US inventories swelled. WTI fell $3.73 over the course of the week, pushing USDCAD higher despite broad USD weakness. The loonie has started this week on the back foot yet again, with little on the data calendar until the labour market report is released on the 11th.