Look For Nonfarm Payrolls To Boost The Dollar Into The Weekend

EUR: Sources come out in favour of a weaker euro

While Mario Draghi may have kept away from weighing in on the strength of the euro in his Jackson Hole speech last week, that has not kept some ECB ‘officials’ critiquing the level of the single currency. ‘Sources’ close to ECB officials told Reuters yesterday that “The exchange rate has become a bigger issue,” and that “It is now less favourable for an exit and a stronger argument for a muddle-through option.” All of this leads us to believe that the euro buying that markets have undertaken in the past few months on the basis that the European Central Bank will begin to taper their asset purchase program by the end of the year may be on rocky ground.

An ECB meeting is due next Thursday and we will be watching the language on tapering very closely to see whether the most aggressive run of single currency strength in a few years is built on shaky foundations.

Today’s PMI news will be able to further illustrate if the Eurozone economy is in a strong enough place that a reduction in Eurozone stimulus is even sensible. The preliminary measures released last week pointed to a decent amount of manufacturing sector strength, particularly in Germany.

CNY/CNH: Another stronger PMI boosts the yuan

Overnight the run of manufacturing PMIs that heralds the beginning of a new month began in China with the Caixin PMI, a sentiment survey that is a lot more independent that the government measure released 24hrs previously showed. CNH was boosted as a result even in the face of the USD getting bought ahead of today’s payrolls report.

GBP: Lower on the Bank of England, higher on Brexit

GBP is the currency that will send me to the psychologist’s couch.

Bank of England Monetary Policy Committee member Michael Saunders said in a speech on Thursday that “a modest rise in rates would help ensure a sustainable return of inflation to target over time”. Regarding inflation, he said that he suspects “that CPI inflation will edge back up to roughly 3% y/y in coming months and remain above the 2% target for some time. There are some hints that external cost pressures from sterling’s depreciation may be peaking”. It was a speech that could only have been given by someone who voted for a rate rise last month and was outvoted.

Despite the obvious hawkish pronouncements, GBP fell before rising following the testy press conference between Brexit Minister David Davis and EU Chief Negotiator Michel Barnier. Davis dug his heels in on the Brexit ‘porce bill’ while Barnier told reporters that what the UK had asked for in its most recent position papers was “impossible”. No ‘sufficient progress’ here.

The UK’s manufacturing PMI is due at 09.30.

The Day Ahead: All about the USD

It is a day wherein the US jobs market is in focus and a strong jobs number allied to an improving wage picture should drive the dollar higher as the weekend kicks off.

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