EUR / USD
The Euro drifted below 1.0950 against the dollar ahead of Friday’s US data with a reluctance to engage in aggressive positioning.
There were comments from the ECB that underlying inflation appears to have peaked. The comments increased speculation that the ECB would not increase interest rates at the September policy meeting which curbed Euro support.
According to the BLS report, US non-farm payrolls increased 187,000 for July compared with expectations of just above 200,000 while the June increase was revised down to 185,000 from the 209,000 reported originally.
Manufacturing employment declined marginally on the month and there was a second successive decline in transport-related jobs. The BLS reported that employment in the leisure and hospitality sector increased 20,000 on the month while the ADP data released on Wednesday indicated that there had been a 200,000 surge in leisure jobs. The unemployment rate edged lower to 3.5% from 3.6% with the participation rate unchanged on the month while the number of employed increased over 260,000 on the month. Average hourly earnings increased 0.4% on the month compared with expectations of 0.3% with the year-on-year increase unchanged at 4.4%.
Although the data was mixed, the dollar posted steady losses after the data.
The Euro initially hit selling interest close to 1.1000, but extended gains to 1.1040 around the European close. There was, however, a retreat towards 1.1000 later in the session as equities moved lower. Narrow ranges prevailed on Monday with the Euro retreating to around 1.0985 against the dollar.
There was a shift in Fed Funds rate expectations after the US jobs data with the chances of a September rate hike seen at below 15%.
Treasuries rallied strongly with the 10-year yield declining to below 4.10%.
Lower US yields were pivotal in derailing the US dollar with a retreat to lows near 141.50 against the Japanese currency.
Atlanta Fed President Bostic stated that Fed policy is likely to be restrictive well into 2024. Chicago head Goolsbee state that the question on interest rates should be how long are is the bank going to stay at these levels rather than when the next hike will be.
The dollar edged higher to 141.70 despite an element of yen support from weaker equities.
Over the weekend, Fed Governor Bowman stated that additional rate hikes will be needed if the data shows that inflation progress has stalled.
The dollar posted gains to 142.30 before a limited correction to 142.15 with the Euro trading above 156.00.
The UK construction sector PMI index recovered to a 5-month high of 51.7 for July from 48.9 previously and well above consensus forecasts of 48.1.
There was a further contraction in residential house building, but this was offset by solid growth in the commercial and civil sectors.
Despite stronger than expected data, markets overall tended to scale back expectations of peak UK interest rates.
Sterling posted gains after the US jobs data with a peak just above 1.2780 against the dollar. As well as a weaker US currency, a more constructive risk tone also helped underpin Pound sentiment to some extent. The Euro, however, maintained a strong tone and advanced to 0.8640.
CFTC data reported a further decline in long Sterling positions to just below 50,000 contracts from 59,000 the previous week. There is still scope for a further closing of long Sterling positions if there is a shift in sentiment towards the UK outlook.
Sterling settled around 1.2725 against the dollar on Monday amid evidence of a slowdown in the labour market with the Euro around 0.8635.
The Swiss franc lost ground on Friday with a more constructive risk tone curbing potential support. The Euro advanced to 0.9615 against the franc amid wider gains while the dollar retreated to test 0.8700 before settling around 0.8715.
The franc edged lower again on Monday with the Euro around 0.9615 and the dollar securing a net gain to 0.8755.