Monex: EUR/USD is licking its wounds after strong US jobs report

Monex: EUR/USD is licking its wounds after strong US jobs report

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This is a commentary by Ima Sammani, FX Market Analyst at Monex Europe.

EUR

The euro fell down to lows last seen in April against the US dollar after Friday’s US jobs report brought forward expectations for policy normalisation by the Fed. Over the weekend, hawkish European Central bank member Jens Weidmann warned that inflation in the euro area could pick up faster than expected, while adding that the pandemic QE programme must end when the pandemic is over to avoid overheating the eurozone economy.

The bloc’s currency simply shrugged at these comments, given that the ECB’s forecasts foresee eurozone CPI levels would still be at 1.4% in 2023 while the central bank also increased their inflation target to a symmetrical 2% target compared to “below, but close to 2%” previously.

Beyond this, the ECB stated in their July meeting inflation is required to reach 2% well ahead of the end of our projection horizon and durably for the rest of the projection horizon, arguably making it even harder for them to take their foot off the gas in terms of stimulus. Because of this, Weidmann’s comments were of little importance to markets on Monday.

USD

An incredibly strong labour market report on Friday saw the dollar enjoy gains across the G10 currency board, particularly against lower-yielding currencies, as the data supported the view that the Federal Reserve would be able to taper its QE programme later this year. Total Nonfarm employment now stands 5.7mln below its pre-covid level - a large gap to fill but clear progress has been made, especially given jobs gained in July were spread broadly across most sectors.

This morning, markets continued Friday’s post-payroll price action, with the dollar holding onto gains and Treasuries remaining close to Friday’s sell-off while gold slumped over 4% from the open in Asia. Looking ahead, the week looks quieter with the economic calendar being light. Wednesday’s US CPI print is the most notable release, with the data set to moderate to 5.3% YoY vs 5.4% previously, and 0.4% MoM vs 0.9% in June.

Beyond that, today’s JOLTS job openings figure at 15:00 BST will be in focus after Friday’s robust jobs report, although the data period for the job openings runs through June. The JOLTS reading is set to print at 9270k - a modest uptick from May’s 9209k.

GBP

Friday’s session saw the pound reverse all of its weekly gains after a strong US jobs print resulted in a broad bid in the greenback. This morning, with little events transpiring over the weekend, markets continue to digest Friday’s jobs data. However, G10 FX markets have started today’s European session in a tight range despite the US dollar going bid across the EM space.

In the political space, tensions between Chancellor Rishi Sunak and Prime Minister Boris Johnson continue to simmer as both parties are set to lock horns over the future of fiscal spending. Despite UK debt sitting at its highest level since the 1960s, the Prime Minister wants to continue spending despite calls from within the cabinet for fiscal conservatism. This week, the UK data calendar is sparse until Thursday’s release of Q2 GDP.