Monex: Dollar seeks direction after mixed US labour market data

Monex: Dollar seeks direction after mixed US labour market data

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The Dollar seeks direction after mixed US labour market data. Below is a short commentary in English by Ima Sammani, Currency Analyst at Monex Europe on the US dollar, the euro and the British pound.

EUR

EURUSD opened steady in light trading due to the US independence day holiday this morning while German bonds stayed just below Friday’s highs ahead of Purchasing Managers’ Index figures this morning. While these figures are unlikely to spark many fireworks in currency markets, inflation talks from the European Central Bank will catch most of the attention this week.

Policymakers are yet to reach an agreement on what inflation should look like; ECB Official Isabel Schnabel stated that it is “necessary and proportionate” that inflation overshoots the central bank’s goal for a while as the economy recovers, while colleague Klaas Knot warned against underestimating accelerating inflation.

The comments come as the ECB prepares for Tuesday’s meeting where they will discuss the ongoing strategy review. The discussions are unlikely to result in a rapid conclusion of the strategy review, which was launched back in January 2020, however, the surprise meeting does suggest that policymakers are keen to conclude the process before September’s monetary policy meeting.

USD

The US dollar is in limbo this morning after Friday’s mixed bag of US labour market data allayed investor fears about a speedy introduction of policy normalisation. While the upwards surprise to June’s net employment data is positive for the US labour market, the data didn’t translate into a faster recovery in the labour market and the unemployment rate remained stable at 5.9%.

A recovery in the labour market is essential under the Fed’s criteria for normalising policy, and without the net addition of jobs resulting in a lower unemployment rate, the jobs report failed to fuel expectations for earlier monetary policy normalisation by the Federal Reserve. With US markets being closed for holiday today, the first data prints of this week’s economic calendar only appear tomorrow.

GBP

Sterling recovered some lost ground on Friday, reversing all of Thursday’s losses, as the US Nonfarm Payroll data surprised markets and resulted in broad-based USD weakness. However, there remains some concern over the projected economic recovery in the UK as real-time data begins to stagnate.

Today’s final reading of June’s services and composite PMIs may quell some of those concerns if either of the two data points stick to or are revised up from the preliminary reading of 61.7. However, the risks are tilted to the downside, especially for the composite PMI, after the manufacturing PMI was revised down last week from 64.2 to 63.9.

Markets will also look towards Downing Street today as Prime Minister Boris Johnson is set to announce the lifting of most restrictions on July 19th.