EUR / USD
US non-farm payrolls increased 1.37mn for August from a revised 1.73mn the previous month and slightly below consensus forecasts of 1.40mn. The increase in manufacturing jobs was held to 29,000, but there was a strong increase in retail jobs and a further increase in hospitality. There was a big boost in government jobs of over 340,000 as payrolls were increased on a temporary basis to manage this year’s census.
The unemployment rate declined to a 5-month low of 8.4% from 10.2% and well below expectations of 9.8% as the household survey recorded a sharp increase in employment. Average hourly earnings increased 4.7% in the year, unchanged from the previous reading.
Although the unemployment rate declined sharply, there were concerns over underlying employment trends as the increase in private payrolls slowed. There was also a further sharp increase in the number of long-term unemployed which will increase concerns over longer-term economic scarring.
There was choppy trading following the release with the dollar initially making net gains, although the Euro again found support below the 1.1800 level. The US currency gradually lost ground amid underlying negative sentiment and the lack of yield support with expectations of medium-term losses.
CFTC data recorded a decline in long Euro positions in the latest week, although the total was still close to 200,000 contracts, maintaining the risk of a further correction.
The ECB will be a key focus this week while market conditions will be subdued on Monday given that US markets will be closed with the Euro around 1.1830.
The US equity futures failed to gain support from the labour-market data and Wall Street indices moved sharply lower at the market open. In this environment, the yen gain renewed defensive support and the dollar was unable to make significant headway against the Japanese currency.
Boston Fed President Rosengren stated that the market had got the message that interest rates in the US would not be increasing anytime soon and Chair Powell reiterated that case for low-interest rates in the years ahead. There should be no comments this week with a blackout in force ahead of the September 16th meeting.
The dollar settled around 106.25 as US yields declined. Chinese trade data was mixed as exports advanced 9.5% in the year to August in yuan terms, but there was a 2.1% decline in imports compared with expectations of a slight increase which triggered some reservations over Chinese domestic demand.
Asian equities overall moved lower amid reservations over risk conditions with the dollar little changed around 106.25 amid fragile US sentiment.
The UK PMI construction index declined to 54.6 for August from 58.1 previously and well below consensus forecasts of 58.5. Although the sector remained in expansion territory, there was a net slowdown in growth with activity hampered by underlying uncertainty.
Bank of England MPC member Saunders noted that the UK economic recovery had been stronger than expected in May, but the window of favourable conditions was now fading. He also commented that the bank needed to act against downside risks and he expected a further increase in quantitative easing would be needed.
The weaker than expected data and cautious remarks from Saunders put Sterling on the defensive into the New York open.
The UK currency dipped below 1.32 after the US employment data, but gradually regained ground amid independent support and dollar losses to trade above 1.3250.
Chief Negotiator Frost warned that the EU stance may limit progress that can be made in talks which resume on Tuesday and also warned that the UK was not afraid to walk away from talks. There were also reports of new UK legislation which would over-ride the withdrawal agreement on Northern Ireland which would increase tensions sharply. Prime Minister Johnson also stated that a deal was needed by October 15th to ensure ratification and both sides should move on if there is no agreement by then. The sharp increase in tensions undermined Sterling with a retreat to near 1.3210 against the dollar while the Euro advanced to around 0.8950.
The Swiss currency edged lower ahead of the New York open and was unable to gain support from a fresh decline in US equities. Despite a mixed performance, the Euro moved above 1.0800 and the dollar pushed to highs above 0.9150 before retreating slightly.
There is likely to be cautious ahead of Thursday’s ECB policy meeting with the rhetoric important for medium-term Swiss currency moves and potential policy responses. National Bank rhetoric will also be monitored closely and the Euro held above 1.0800 on Monday with the dollar around 0.9140.