US employment and monetary policy in the limelight

It was a quiet afternoon in the markets as the UK and German traders sought the best vantage point to watch the football. It was worth it for English fans though, so that’s good. I hope their hangovers aren’t too painful though. This is the last day of the Month, the Quarter, and the Half-Year. So it will be lively.

We have seen some shaking out of positions over the past few days. The US Dollar, which has felt under threat through June, has found some buyers again. These are more likely previous sellers, closing out their positions but the impact is the same. Hence the GBPUSD rate that started the month around $1.4250, is down to $1.3850 this morning and the EURUSD rate, which threatened $1.2250 at the start of June is down to $1.1905 as I write.

Whether those positions will remain as subdued is open to debate right now but the Friday US employment report is likely to point the compass for the USD. That and the Federal Reserve’s views on the pace, timing, and magnitude of the normalisation of their monetary policy.

GBP under pressure on last day shuffle

Sterling’s hangover (I am talking about the currency now and not the scorer of England’s first goal) wasn’t helped by confirmation that the UK economy contracted by 6.1% in the year to March with the Q1 slightly worse than expected on a quarter-on-quarter basis. The annual figure was in line with the previous estimates though. However, the Pound is being sold this morning; probably on profit-taking after a month of GBP gains. That data was accompanied by poor but slightly improved Q1 UK business investment numbers and a similarly poor but improving government current account deficit. Other than a speech from Andy Haldane of the BOE, Sterling traders will have nothing to cheer about for the rest of the day.

Commodity-linked currency suffer as USD regains strength

The strength of the US Dollar has an adverse effect on currencies that trade in commodities. Generally speaking, a stronger USD weakens the commodities that are traded in USD. So we have seen some weakness in the Australian Dollar. The GBPAUD rate was up above AUD 1.84 overnight but has dipped this morning after the UK GDP data. GBPNZD has followed a similar path; spiking to just above NZD 1.98 overnight but dropping half a cent in early trade. GBPZAR has also spiked and dropped overnight; ZAR 19.88 at the high and down ten cents from that this morning.

Canadian GDP contraction expected

Ditto the GBPCAD rate. The overnight high was CAD 1.7180 but we are down to CAD 1.7130 as I write. This afternoon’s Canadian GDP data can stop that decline. The forecasts suggest a contraction of 0.8% in Canada’s economy in April; the first negative number since June 2020. If the actual data matches that or is worse, the Canadian Dollar will come under pressure.

European data today comes in the form of consumer inflation, which is highly unlikely to rock the boat, and German unemployment data which, whilst interesting, is also unlikely to change the fate of the Euro. We will have a couple of speeches from ECB members but we have to expect the Euro will be shunted about by the USD and its antics.

And there are enough US diary entries to keep us interested. We have speeches from 2 federal reserve Chairmen today. (There are 12 Districts and the overall Chairman, so there are always one or two in the news). We will also see the ADP employment report which excludes agricultural employment, the seasonal variations of which would distort the numbers. The expectation is for a gain of 600,000 jobs in this survey. That would be 40% less than last month but still a good sign. This afternoon will also deliver home sales data and crude oil inventories. Both of which have been quite influential on the USD of late. As is always the case. Friday’s non-farm payroll report will be more influential than almost anything else this week, so we await that with interest.

Sterling may regain a little strength today if the British Government’s announcements surrounding business support are well received. The EU will be scrutinising the terms to ensure they don’t challenge any current Brexit agreements and whether they will impact future negotiations. These announcements are almost as influential as sausages, it seems.

And on this day in 1937, the 999 emergency phone number was established in London. That was the world’s first and now, in amongst the 33 million calls made to 999 each year, people have also called because their children won’t eat their peas or to check whether it is OK to drive in flip-flops. Strewth.

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