Market Overview

Friday In Forex: Dollar Hit By Jobs Number, But Broadly Stronger On The Week

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The U.S. dollar fell on Friday after July's non-farm payroll (NFP) figures came in below expectations. The economy added 157,000 and unemployment rate dropped to 3.9 percent. Wage growth remained unchanged at 0.3 percent. The greenback is still higher against most major pairs on a weekly basis.

The past five trading days also featured several central bank meetings and influential economic indicators, but the guiding factor remains trade tensions between China and the United States. On Friday, China announced its preparing new tariffs on $60 billion of U.S. goods as retaliation on the ongoing trade spat.

Here's a recap of what impacted the global forex markets.

Euro Gains Friday, Down On Week

The EUR/USD lost 0.61 percent in the last five days. The single currency is trading at 1.1567 after the EUR rose 0.10 percent on Friday but is far from recouping the gains of the USD during the week. The euro rose on a tight range-bound sesion despite weak retail sales — helped by the lower-than-expected U.S. jobs report. The currency pair was mostly guided by geopolitics and the U.S. Federal Reserve meeting on Wednesday. Trade tensions have escalated on the US-China front with the US central bank staying put on rates, but giving an optimistic view on the economy.

The Fed Stays On Course

The US central bank is expected to continue with its plans to lift interest rates two more times in 2018. The jobs report brought less jobs than expected but still managed to add enough jobs to bring the unemployment rate down to 3.9 percent. There are concerns that the employment numbers will take a hit as trade war decisions trickle down but for now the outlook for American jobs is solid.

Inflation pressures remains low as despite a lower unemployment and high participation rate wages have not caught up to other costs. Labour shortages have not been widespread enough to trigger an above inflation rise in pay.

The positive employment data and the impressive growth of the economy in the second quarter validate the Fed's decision to raise rates twice so far in 2018 and to continue on the path for two more rate hikes. The CME FedWatch tool shows a 93.6 percent of a chance of a hike in September 26.

The consumer price index on Friday will shed more light on inflation in America.

England's Dovish Hike Sinks Pound

The GBP/USD fell 0.79 percent during the week but, like the Euro, gained slightly on Friday.

The Bank of England (BoE) hiked its benchmark rate on Super Thursday, but it was the cautionary words of BoE Governor Mark Carney that ultimately took the currency lower. Though the actions of the central bank were hawkish — delivering the second rate hikes since the crisis — Brexit looms over the monetary policy decision as hard Brexit scenarios have increased in probability.

The decision was unanimous, but given the fragile state of Prime Minister May's leadership as she heads into the final 8 months of Brexit negotiations, it could end up being the only pro-active decision by the central bank in 2018 as it heads into reactive territory.

Loonie Higher On Strong Data And NAFTA Hopes

The USD/CAD lost 0.58 percent during the week. The currency pair is trading at 1.2983 after strong Canadian trade data added more arguments for a Bank of Canada (BoC) rate hike.

Canada's deficit shrunk to $626 million in June, and July's GDP numbers released on Tuesday beat estimates with a 0.5 percent gain.
Canadian dollar weekly graph July 30, 2018

The Bank of Canada (BoC) last lifted interest rates by 25 basis points on July 11. A strong GDP report and a narrower trade deficit have increased the probability of further hikes in 2018. Bank of Nova Scotia is forecasting  two more rate hikes despite the uncertain outcome on NAFTA. The BoC will try to keep the gap between the Fed funds rate and the Canadian rate as large as the economy will allow.

Mexican Peso Rises

The USD/MXN depreciated on a weekly basis and was trading at 18.5574 on Friday afternoon. The highest point came as trade fears triggered a flight to safety in which investors bought dollars.

The peso climbed on Thursday and Friday's NAFTA talks, which have shown positive signs, and the soft employment numbers in the U.S.

Mexico's newly-elected president has been optimistic that a deal can be reached quickly. Mexican negotiators are in Washington holding talks with the U.S. Trade representative, but the Trump administration did not extend an invitation to Canada to join the meetings.

The administration is sticking to its demands for a sunset clause and auto-related changes, and had indicated more willingness to negotiate in bilateral terms. Mexico has made it clear that it won't negotiate without Canada being present.

The Week Ahead

Next week will be more subdued from a global macro standpoint. The highlights will be the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA) meetings, which are expected to conclude with no changes to their respective interest rates — leaving investors to look for words from central bankers and monetary policy language for guidance. Canadian jobs data, U.K. GDP figures and U.S. inflation will wrap up the week on August 10.

Related Links:

US Unemployment Drops Back Below 4%, Nonfarm Payroll Falls Far Short Of Expectations

Pompeo Announces Billions In Indo-Pacific Investment, Mirroring China's Belt And Road Initiative

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: contributorNews Eurozone Forex Treasuries Global Econ #s Markets

 

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