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EUR / USD

The final German PMI services-sector index was revised higher to 52.5 from the flash reading of 50.8. There was a downgrade for France and the Italian index was notably weaker than expected with a slide into contraction territory. The overall Euro-zone index was revised slightly higher to 50.5 from 50.1, but below the 54.9 for July.

There was further speculation that the ECB was uneasy over recent Euro gains with a growing focus on next week’s council meeting. The Euro remained weak ahead of the New York open, although it again found support below 1.1800 against the dollar.

US initial jobless claims declined to 881,000 in the latest week from 1.01mn the previous week and below consensus forecasts of 950,000. Continuing claims also declined to 13.25mn from 14.49mn previously. In the week of August 15th, however, there was a sharp increase in the number of claims under the pandemic unemployment assistance programme of over 2.5mn and all metrics were affected by revised seasonal adjustment methodology which created uncertainty.

The July trade deficit widened to US$63.6bn from US$53.5bn the previous month as imports increased sharply and the largest deficit since July 2008. The final PMI services-sector index was revised up slightly to 55.0 from the flash reading of 54.8.

The August ISM non-manufacturing index declined to 56.9 from 58.1 and marginally below consensus forecasts of 57.0 with significant slowdowns in the rate of growth for business activity and new orders, although order backlogs increased. Employment contracted for the 6th successive month, although the rate of decline slowed.

Although the US dollar posted significant gains against commodity currencies, this was primarily a function of weaker risk appetite and the Euro edged higher to the 1.1840 area. Volatility eased on Friday ahead of the US employment report with the Euro around 1.1850 amid market expectations of an increase in payrolls of 1.4mn.

JPY

The dollar posted gains into the US open amid wider support and briefly moved above 106.50 after the jobless claims data, but then retreated and losses accelerated as equity markets dipped sharply. The yen gained fresh defensive support and the decline in US yields also undermined the US dollar with a retreat to near 106.00.

Chicago Fed President Evans reiterated that a highly accommodative policy is appropriate for some time to come and that interest rates could remain at zero until the inflation rate reached 2.5%. He expected peak economic levels to return only by the end of 2022 if the virus is controlled. There were reports that the Democrats and White House have agreed on a stop-gap bill to prevent a government shutdown at the end of September, but there was no headway on a stimulus bill.

In Japan, there were strong expectations that Chief Secretary Suga would secure the LDP leadership and reports that he would sanction a further fiscal stimulus bill. Asian equities moved lower, although losses were controlled and the dollar settled around 106.15 ahead of the US jobs data.

GBP

The final UK PMI services-sector index was revised down to 58.8 from the flash reading of 60.1 which increased concerns that the UK recovery could slow over the next few months. Business confidence also edged lower for August while employment also declined further on the month.

Sterling was unable to make any headway amid reservations over the fundamental outlook. The UK currency has been underpinned by strong global risk appetite, but the more defensive tone on Thursday was significant in eroding support. Weaker risk appetite also triggered a greater focus on domestic fundamentals.

The UK government stated that EU Chief Negotiator Barnier had mis-represented the UK’s position on trade talks, but there was further evidence of tensions over fisheries with reports that the latest UK proposals had been rejected immediately by the EU.

The UK currency initially dipped to below 1.3250 on dollar strength and struggled to regain ground as equities declined sharply while the Euro strengthened to near 0.8930. Sterling was little changed on Friday with the potential for further choppy trading later in the day on domestic and global grounds.

CHF

Swiss consumer prices were unchanged for August with the year-on-year rate unchanged at -0.9% and slightly below consensus forecasts of -0.8%. The data will maintain National Bank concerns over the threat of deflationary pressures and determination to resist franc appreciation.

The franc did, however gain support from the more fragile tone surrounding global risk appetite. The Euro was unable to hold the 1.0800 area and registered limited net losses while the dollar dipped below 0.9100. The franc was little changed on Friday as markets continued to monitor trends in equities and the dollar.

Contents

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