German industrial production contracts through supply problems
This morning started with a surprise decline in German industrial production. Supply problems are being cited for the 1.3% contraction; well below the market forecast of 0.5% growth. This is being discussed as yet more proof that the eurozone economy is struggling to gain traction. There are other problems as well; COVID is one but tragic flooding in Germany and dreadful wildfires in Greece add to the misery and slow the recovery. The Euro is on the back foot against the Pound. That EUR 1.1760 resistance level is under pressure this morning. I wouldn’t be at all surprised if we saw EUR 1.1800 tested in the coming days. Whether the Pound has the oomph to push above there is another matter though.
BOE will ride inflation spike without policy change
Sterling did start the day with a 7.6% rise in UK house prices reported by Halifax and the Pound was buoyed yesterday by the Bank of England’s decision to leave the base rate on hold. The BoE also seems willing to let the inevitable inflation, created through the year-on-year improvement, wash through the system before rushing into higher rates or tighter monetary policy. That is, in my opinion, a very sensible and welcome bit of straight thinking. Traders seemed to agree. GBPUSD is back up to USD 1.3925 and you can see the gains against the Euro above.
For its part, the US Dollar remained in negative mode even though the weekly jobless claims data was much more positive than the ADP white-collar data from the day before. The fresh jobless claims number of 385,000 is roughly in line with the lowest levels we have seen since March 2020. Nonetheless, the EURUSD rate eased higher to $1.1820 this morning.
US employment report will drive USD today
But today is a big day for the USD because it is non-farm payroll day. We will get the July employment report this afternoon, which may go some way to explain the disparity between the ADP and official data. If the growth in non-agricultural jobs is anything above 900,000, we can expect US Dollar strength. Logically, the opposite is true; a gain of less than 850,000 is likely to add to concerns over the slow pace of US economic recovery and USD weakness is inherent in that.
And it is international Beer Day but also international Fresh Breath Day. These guys need to coordinate. Having both on the same day is bound to lead to disappointment for one camp.