The big release from Friday was the non-farm payrolls in the US, where the better than expected figures helped lift the USD index as the greenback posted gains vs EUR, GBP , JPY and other counterparts. The headline number of 200k jobs added to the economy and stronger than expected wage growth was enough the see USD bidders return to the market, the USD index now trading .75% higher off last week’s lows. GBP was under some pressure on Friday following weaker than expected manufacturing data and while many will continue to argue the situation in the UK is not nearly as bad as to doomsayers predicted, they still considerably lag behind their leading counterparts on output metrics and Brexit negations have not come anywhere close to being finalised. Headlines over the weekend suggesting there will be no customs union and even a conservative civil war within the Tory party will not help GBP’s positioning should we see further escalation or uncertainly. In Europe, the usual rumblings continue, Germany’s Merkel continues to look to form a viable coalition but the euro’s not really taking too much direction from this uncertainty yet. Broader risk remain to the downside, equity markets had one of their biggest down weeks in several years and we’ve welcomed in this week with a sea of red across Europe.
My colleague Conor pointed to the continued rise in US treasury yields last Friday and on Friday we saw the US 10 year post one of its largest one day rally’s since September 2017 closing the day at 2.847. The only difference this day was the USD was also rallying along with its yields, a price action we would normally associate the dollar with vs rising yields. There were comments from the Feds John Williams over the weekend and this supported the general tone from Wednesday’s FOMC meeting, if not slightly more bullish on growth and the economy. With inflation pressure expected to build this year, along with wage growth as well, with better global growth and therefore gradual rate hikes will be necessary to avoid risk of overheating the economy. There were similar comments from the Feds Janet Yellen, one comment she aimed directly at asset valuations suggesting they were “elevated”. The dollar only slightly weaker in early trading this week. US services data tops this afternoon calendar with Non-Manufacturing ISM data.
GBP has faced some early pressure this morning, already slightly weaker from Brexit related headlines over the weekend, the release of the services PMI reading this morning encouraged additional GBP selling. The services figure came in at 53.0 vs 54.1 and the continued slowdown in an area that is a majority contributor to UK GDP is a worrying trend. The composite CPI reading was also weaker at 53.5 vs 54.6 and overall this run of UK data this year thus far has not been great. The only two real decent points were inflation and wage growth but the UK still experiences negative real wage growth so there is progress to be made there still. But as we cannot stress enough, Brexit talks and discussion will have a greater impact on GBP value and as we approach a big week for lawmakers, PM May is already under pressure from within her own party.
Services data for the Eurozone was already released this am and is better than expected, this has helped lift the euro across the board and as we mention last week EURUSD looks like it wants to target back towards 1.25000 levels. Retail sales then cross the wires and again the euro has upside potential here as data continues to be better than expected. Mario Draghi speaks later in the afternoon in front of the European Parliament. Any discussions on the euro’s value will be closely watched for, especially as he refused to address it at his last ECB meeting,