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  • richard evans

US dollar fails to hold post-nonfarm gains

Good morning

The US dollar pushed higher initially after a stronger than expected nonfarm payroll headline Friday which came in at +263k against expected +200k, with average hourly earnings also higher. The unemployment rate held at 3.7%. GBPUSD and EURUSD slumped, trading down from 1.2270 and 1.0535 to 1.2135 and 1.0430 respectively. However the US dollar could not hold onto those gains and weakened through the afternoon, and by the close had all but returned to its pre-release levels. Downward revisions to previous months data was partly responsible for the turn.

Overnight we saw further US weakness which took GBPUSD to 1.2345 and EURUSD to 1.0585 but both have returned to almost exactly the levels we saw just before the nonfarms. GBP doing a pretty good job of ignoring CBI’s warning that UK is about to head into a year-long recession.

China’s Xi has said Omicron is the main strain of Covid now and it is much less lethal than the delta variant which opens the door for easing restrictions. As China potentially relax their Covid rules I see hospitalisations in the US due to Covid are on the rise, reaching their highest level for three months at over 35,000. Mind you there were 20,000 flu hospitalisations I n the US through Thanksgiving week.

We have RBA rate announcement early tomorrow morning, a rise of 25bps to 3.1% looks on the cards, pretty much priced in so focus will be on the accompanying statement and how much they talk of further rises. They are already expected to lift rates further to around 3.5% through 2023, but the key now is whether they give an indication where they see rate speaking.

CAD rate announcement will follow on Wednesday but by then focus is more likely to be on next week where we have rate announcements from ECB, BoE and the Fed.

Focus also likely to be on the World Cup of course. England put on a good display against Senegal yesterday to put them into the quarter finals where we face France., That could be an interesting match between two very close teams, as you’d expect at this stage of the competition. Before then though we have other knockout matches to enjoy with Japan taking on Croatia this afternoon and tournament favourites Brazil facing South Korea this evening. Are we going to see an upset?

Meanwhile Englands cricketers are hoping to bowl out Pakistans batsmen in the final day of the test match. Pakistan 224-5 as I type needing just 119 to win, the match is very finely balanced. Who said Test cricket was dull.

- 09.00 EU S&P composite PMI

- 09.30 UK S&P composite PMI

- 10.00 EU retail sales

- 14.45 US S&P services, composite PMI

- 15.00 US services ISM, factory orders

- 23.30 Japan household spending

- 00.01 UK BRC retail sales

- 03.30 RBA rate announcement

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